10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.   20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2016

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period fromto

Commission File Number 001-35292

LCNB Corp.

(Exact name of registrant as specified in its charter)

Ohio	31-1626393
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

2 North Broadway, Lebanon, Ohio 45036

(Address of principal executive offices, including Zip Code)

(513) 932-1414

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x Yes         ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

x Yes         ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer x
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

¨ Yes         x No

The number of shares outstanding of the issuer's common stock, without par value, as of August 4, 2016 was 9,978,975 shares.

LCNB CORP. AND SUBSIDIARIES

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION	2
Item 1.  Financial Statements	2
CONSOLIDATED CONDENSED BALANCE SHEETS	2
CONSOLIDATED CONDENSED STATEMENTS OF INCOME	3
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME	4
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY	5
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS	6
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS	7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of  Operations	40
Item 3.  Quantitative and Qualitative Disclosures about Market Risks	50
Item 4.  Controls and Procedures	51
PART II.  OTHER INFORMATION	52
Item 1.   Legal Proceedings	52
Item 1A.  Risk Factors	52
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds	52
Item 3.   Defaults Upon Senior Securities	52
Item 4.   Mine Safety Disclosures	52
Item 5.   Other Information	52
Item 6.   Exhibits	53
SIGNATURES	54

1

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

LCNB CORP. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

(Dollars in thousands, except per share data)

	June 30, 2016			December 31, 2015
	(Unaudited)
ASSETS:
Cash and due from banks	$	17,254		14,155
Interest-bearing demand deposits	1,753			832
Total cash and cash equivalents	19,007			14,987
Investment securities:
Available-for-sale, at fair value	353,528			377,978
Held-to-maturity, at cost	39,447			22,633
Federal Reserve Bank stock, at cost	2,732			2,732
Federal Home Loan Bank stock, at cost	3,638			3,638
Loans, net	797,092			767,809
Premises and equipment, net	24,985			22,100
Goodwill	30,183			30,183
Core deposit and other intangibles	4,986			5,396
Bank owned life insurance	26,921			22,561
Other assets	10,116			10,514
TOTAL ASSETS	$	1,312,635		1,280,531
LIABILITIES:
Deposits:
Noninterest-bearing	$	252,498		250,306
Interest-bearing	872,200			836,854
Total deposits	1,124,698			1,087,160
Short-term borrowings	30,541			37,387
Long-term debt	726			5,947
Accrued interest and other liabilities	10,960			9,929
TOTAL LIABILITIES	1,166,925			1,140,423
COMMITMENTS AND CONTINGENT LIABILITIES	—			—
SHAREHOLDERS' EQUITY:
Preferred shares – no par value, authorized 1,000,000 shares, none outstanding	—			—
Common shares – no par value; authorized 19,000,000 and 12,000,000 shares at June 30, 2016 and December 31, 2015, respectively; issued 10,690,889 and 10,679,174 shares at June 30, 2016 and December 31, 2015, respectively	75,602			76,908
Retained earnings	77,384			74,629
Treasury shares at cost, 753,627 shares at June 30, 2016 and December 31, 2015	(11,665		)	(11,665	)
Accumulated other comprehensive income, net of taxes	4,389			236
TOTAL SHAREHOLDERS' EQUITY	145,710			140,108
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	1,312,635		1,280,531

The accompanying notes to consolidated condensed financial statements are an integral part of these statements.

The consolidated condensed balance sheet as of December 31, 2015 has been derived from the audited consolidated balance sheet as of that day.

2

LCNB CORP. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(Dollars in thousands, except per share data)

(Unaudited)

	Three Months Ended   June 30,			Six Months Ended   June 30,
	2016		2015	2016	2015
INTEREST INCOME:
Interest and fees on loans	$	8,892	9,492	17,519	18,032
Interest on investment securities:
Taxable	1,187		1,033	2,376	1,889
Non-taxable	794		702	1,552	1,355
Other investments	135		121	182	162
TOTAL INTEREST INCOME	11,008		11,348	21,629	21,438
INTEREST EXPENSE:
Interest on deposits	870		671	1,693	1,353
Interest on short-term borrowings	8		4	22	8
Interest on long-term debt	5		73	17	149
TOTAL INTEREST EXPENSE	883		748	1,732	1,510
NET INTEREST INCOME	10,125		10,600	19,897	19,928
PROVISION FOR LOAN LOSSES	396		677	486	746
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	9,729		9,923	19,411	19,182
NON-INTEREST INCOME:
Trust income	837		852	1,600	1,652
Service charges and fees on deposit accounts	1,243		1,234	2,436	2,341
Net gain on sales of securities	279		221	650	332
Bank owned life insurance income	191		155	360	314
Gains from sales of loans	61		219	102	254
Other operating income	139		150	244	244
TOTAL NON-INTEREST INCOME	2,750		2,831	5,392	5,137
NON-INTEREST EXPENSE:
Salaries and employee benefits	4,532		4,381	9,095	8,671
Equipment expenses	239		302	488	590
Occupancy expense, net	588		584	1,157	1,179
State franchise tax	276		250	557	502
Marketing	201		220	368	383
Amortization of intangibles	188		175	375	321
FDIC insurance premiums	162		145	327	296
Other real estate owned	356		20	385	55
Merger-related expenses	—		522	—	592
Other non-interest expense	1,926		1,827	4,008	3,486
TOTAL NON-INTEREST EXPENSE	8,468		8,426	16,760	16,075
INCOME BEFORE INCOME TAXES	4,011		4,328	8,043	8,244
PROVISION FOR INCOME TAXES	1,043		1,205	2,111	2,287
NET INCOME	$	2,968	3,123	5,932	5,957
Dividends declared per common share	$	0.16	0.16	0.32	0.32
Earnings per common share:
Basic	$	0.30	0.33	0.60	0.63
Diluted	0.29		0.32	0.59	0.62
Weighted average common shares outstanding:
Basic	$	9,922,024	9,694,732	9,919,070	9,504,739
Diluted	9,943,797		9,804,728	9,971,900	9,609,050

The accompanying notes to consolidated condensed financial statements are an integral part of these statements.

3

LCNB CORP. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

	Three Months Ended   June 30,					Six Months Ended   June 30,
	2016			2015		2016		2015
Net income	$	2,968		3,123		5,932		5,957
Other comprehensive income (loss):
Net unrealized gain (loss) on available-for-sale securities (net of taxes of $742 and $838 for the three months ended June 30, 2016 and 2015, respectively and $2,332 and $75 for the six months ended June 30, 2016 and 2015, respectively.)	1,439			(1,627	)	4,526		(147	)
Reclassification adjustment for net realized (gain) loss on sale of available-for-sale securities included in net income (net of taxes of $95 and $75 for the three months ended June 30, 2016 and 2015, respectively and $221 and $113 for the six months ended June 30, 2016 and 2015, respectively)	(184		)	(146	)	(429	)	(219	)
Change in nonqualified pension plan unrecognized net loss and unrecognized prior service cost (net of taxes of $14 and $15 for the three months ended June 30, 2016 and 2015, respectively and $28 and $29 for the six months ended June 30, 2016 and 2015, respectively)	28			28		56		56
TOTAL COMPREHENSIVE INCOME	$	4,251		1,378		10,085		5,647

The accompanying notes to consolidated condensed financial statements are an integral part of these statements.

4

LCNB CORP. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY

(Dollars in thousands, except per share amounts)

(Unaudited)

	Common Shares Outstanding	Common Stock			Retained Earnings		Treasury Shares		Accumulated Other Comprehensive Income (Loss)		Total Shareholders' Equity
Balance at December 31, 2014	9,311,318	$	67,181		69,394		(11,665	)	785		125,695
Net income					5,957						5,957
Other comprehensive income, net of taxes									(310	)	(310	)
Dividend Reinvestment and Stock Purchase Plan	12,005	188									188
Acquisition of BNB Bancorp, Inc	560,132	9,063									9,063
Exercise of stock options	13,449	152									152
Excess tax benefit on exercise of stock options		13									13
Compensation expense relating to stock options		10									10
Common stock dividends, $0.32 per share					(3,070	)					(3,070	)
Balance at June 30, 2015	9,896,904	$	76,607		72,281		(11,665	)	475		137,698
Balance at December 31, 2015	9,925,547	$	76,908		74,629		(11,665	)	236		140,108
Net income					5,932						5,932
Other comprehensive income, net of taxes									4,153		4,153
Dividend Reinvestment and Stock Purchase Plan	11,715	192									192
Repurchase of stock warrants		(1,545		)							(1,545	)
Compensation expense relating to stock options		2									2
Compensation expense relating to restricted stock		45									45
Common stock dividends, $0.32 per share					(3,177	)					(3,177	)
Balance at June 30, 2016	9,937,262	$	75,602		77,384		(11,665	)	4,389		145,710

The accompanying notes to consolidated condensed financial statements are an integral part of these statements.

5

LCNB CORP. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Six Months Ended   June 30,
	2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	5,932		5,957
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation, amortization, and accretion	1,680			1,257
Provision for loan losses	486			746
Increase in cash surrender value of bank owned life insurance	(360		)	(314	)
Realized gain from sales of securities available-for-sale	(650		)	(332	)
Realized loss from sales of premises and equipment	35			—
Realized (gain) loss from sales and write-downs of other real estate owned and repossessed assets	346			(9	)
Origination of mortgage loans for sale	(4,850		)	(3,594	)
Realized gains from sales of loans	(102		)	(254	)
Proceeds from sales of mortgage loans	4,907			3,633
Compensation expense related to stock options	2			10
Compensation expense related to restricted stock	45			—
Changes in:
Accrued income receivable	(224		)	(66	)
Other assets	46			(2,671	)
Other liabilities	(613		)	651
TOTAL ADJUSTMENTS	748			(943	)
NET CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES	6,680			5,014
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investment securities available-for-sale	36,529			54,955
Proceeds from maturities and calls of investment securities:
Available-for-sale	33,025			10,858
Held-to-maturity	3,342			1,471
Purchases of investment securities:
Available-for-sale	(38,915		)	(70,922	)
Held-to-maturity	(20,156		)	(3,413	)
Proceeds from sale of impaired loans	—			4,559
Net increase in loans	(29,740		)	(26,123	)
Purchase of bank owned life insurance	(4,000		)	—
Proceeds from sale of other real estate owned and repossessed assets	—			114
Additions to other real estate owned	(182		)	(20	)
Purchases of premises and equipment	(3,565		)	(231	)
Proceeds from sale of premises and equipment	61			21
Net cash acquired from acquisition	—			8,993
NET CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES	(23,601		)	(19,738	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits	37,538			38,695
Net decrease in short-term borrowings	(6,846		)	(3,914	)
Principal payments on long-term debt	(5,221		)	(5,272	)
Proceeds from issuance of common stock	30			28
Repurchase of stock warrants	(1,545		)	—
Proceeds and excess tax benefit from exercise of stock options	—			165
Cash dividends paid on common stock	(3,015		)	(2,910	)
NET CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES	20,941			26,792
NET CHANGE IN CASH AND CASH EQUIVALENTS	4,020			12,068
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	14,987			15,845
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	19,007		27,913
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid	$	1,780		1,542
Income taxes paid	2,160			2,450
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
Transfer from loans to other real estate owned and repossessed assets	—			79

The accompanying notes to consolidated condensed financial statements are an integral part of these statements.

6

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

Note 1 - Basis of Presentation

Substantially all of the assets, liabilities and operations of LCNB Corp. ("LCNB") are attributable to its wholly-owned subsidiary, LCNB National Bank (the "Bank").  The accompanying unaudited consolidated condensed financial statements include the accounts of LCNB and the Bank.

The unaudited interim consolidated condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and the rules and regulations of the Securities and Exchange Commission (the "SEC").  Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations.  In the opinion of management, the unaudited interim consolidated financial statements include all adjustments (consisting of normal, recurring accruals) considered necessary for a fair presentation of financial position, results of operations, and cash flows for the interim periods, as required by Regulation S-X, Rule 10-01.

The consolidated balance sheet as of December 31, 2015 has been derived from the audited consolidated balance sheet as of that day.

Certain prior period data presented in the financial statements have been reclassified to conform with the current year presentation.

LCNB adopted ASU No. 2015-07, "Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)" during the first quarter of 2016. ASU No. 2015-07 applies to entities that measure an investment's fair value using the net asset value per share, or an equivalent, as a practical expedient. It eliminates the requirement to classify such investments within the fair value hierarchy. The amendments are to be applied retrospectively to all periods presented. LCNB measures the fair value of certain mutual fund investments using the net asset value per share practical expedient and disclosures concerning these investments in Note 15 - Fair Value Measurements have been changed to comply with the new guidance. Adoption did not have an impact on LCNB's results of operations or financial position.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Results of operations for the three and six months ended June 30, 2016 are not necessarily indicative of the results to be expected for the full year ending December 31, 2016.  These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements, accounting policies, and financial notes thereto included in LCNB's 2015 Annual Report on Form 10-K filed with the SEC.

Note 2 – Acquisitions

On December 29, 2014, LCNB and BNB Bancorp, Inc. (“BNB”) entered into an Agreement and Plan of Merger (“Merger Agreement”) pursuant to which BNB was acquired by LCNB on April 30, 2015. Immediately following the merger of BNB into LCNB, Brookville National Bank ("Brookville"), a wholly-owned subsidiary of BNB, was merged into LCNB National Bank. Brookville operated a main office and a branch office, both in Brookville, Ohio.  These offices became branches of the Bank after the merger.

Under the terms of the Merger Agreement, the shareholders of BNB common stock received, for each share of BNB common stock, (i) $15.75 in cash and (ii) 2.005 LCNB common shares.

7

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

(Continued)

Note 2 – Acquisitions (continued)

The merger with BNB was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration paid were recorded at their estimated fair values as of the merger date, as summarized in the following table (in thousands):

Consideration Paid:
Common shares issued	$	9,063
Cash paid to shareholder(s)	4,403
Total consideration paid	13,466
Identifiable Assets Acquired:
Cash and cash equivalents	13,396
Investment securities	58,239
Federal Reserve Bank stock	130
Loans	34,661
Premises and equipment	2,311
Core deposit intangible	1,418
Other assets	532
Total identifiable assets acquired	110,687
Liabilities Assumed:
Deposits	99,133
Deferred income taxes	576
Other liabilities	57
Total liabilities assumed	99,766
Total Identifiable Net Assets Acquired	10,921
Goodwill resulting from merger	$	2,545

The amount of goodwill recorded reflects LCNB's entrance into a new market and related synergies that are expected to result from the acquisition and represent the excess purchase price over the estimated fair value of the net assets acquired.  The goodwill will not be amortizable on LCNB's financial records, but is deductible for tax purposes.  The core deposit intangible is being amortized over nine years using the straight-line method.

Direct costs related to the acquisition were expensed as incurred and are recorded as a merger-related expense in the consolidated condensed statements of income.  

8

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

(Continued)

Note 3 - Investment Securities

The amortized cost and estimated fair value of investment securities at June 30, 2016 and December 31, 2015 are summarized as follows (in thousands):

	Amortized Cost		Unrealized Gains		Unrealized Losses	Fair Value
June 30, 2016
Available-for-Sale:
U.S. Treasury notes	$	52,567	1,414		—	53,981
U.S. Agency notes	113,554		1,784		—	115,338
U.S. Agency mortgage-backed securities	47,701		592		17	48,276
Certificates of deposit	248		—		—	248
Municipal securities:
Non-taxable	108,842		2,397		6	111,233
Taxable	20,507		721		2	21,226
Mutual funds	2,508		8		17	2,499
Trust preferred securities	49		—		—	49
Equity securities	633		48		3	678
	$	346,609	$	6,964	45	353,528
Held-to-Maturity:
Municipal securities:
Non-taxable	30,084		796		29	30,851
Taxable	9,363		68		—	9,431
	$	39,447	864		29	40,282
December 31, 2015
Available-for-Sale:
U.S. Treasury notes	$	72,672	309		135	72,846
U.S. Agency notes	140,876		164		1,151	139,889
U.S. Agency mortgage-backed securities	29,608		174		404	29,378
Certificates of deposit	248		1		—	249
Municipal securities:
Non-taxable	103,900		1,713		134	105,479
Taxable	26,738		337		134	26,941
Mutual funds	2,517		—		51	2,466
Trust preferred securities	49		1		—	50
Equity securities	659		40		19	680
	$	377,267	2,739		2,028	377,978
Held-to-Maturity:
Municipal securities:
Non-taxable	22,233		95		97	22,231
Taxable	400		—		1	399
	$	22,633	95		98	22,630

9

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

(Continued)

Note 3 - Investment Securities (continued)

Information concerning investment securities with gross unrealized losses at June 30, 2016 and December 31, 2015, aggregated by length of time that individual securities have been in a continuous loss position, is as follows (dollars in thousands):

	Less than Twelve Months			Twelve Months or Greater
	Fair Value		Unrealized Losses	Fair Value		Unrealized Losses
June 30, 2016
Available-for-Sale:
U.S. Treasury notes	$	—	—	$	—	—
U.S. Agency notes	—		—	—		—
U.S. Agency mortgage-backed securities	—		—	3,909		17
Municipal securities:
Non-taxable	—		—	2,770		6
Taxable	1,005		—	451		2
Mutual funds	—		—	263		17
Trust preferred securities	49		—	—		—
Equity securities	68		3	—		—
	$	1,122	3	$	7,393	42
Held-to-Maturity:
Municipal securities:
Non-taxable	$	—	—	2,636		29
Taxable	—		—	—		—
	$	—	—	$	2,636	29
December 31, 2015
Available-for-Sale:
U.S. Treasury notes	$	32,854	75	$	4,846	60
U.S. Agency notes	104,053		1,000	9,869		151
U.S. Agency mortgage-backed securities	19,190		256	4,068		148
Municipal securities:
Non-taxable	13,124		74	7,037		60
Taxable	15,601		114	880		20
Mutual funds	1,215		17	268		34
Trust preferred securities	—		—	—		—
Equity securities	248		12	73		7
	$	186,285	1,548	$	27,041	480
Held-to-Maturity:
Municipal securities:
Non-taxable	$	832	3	$	3,426	94
Taxable	399		1	—		—
	$	1,231	4	$	3,426	94

10

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

(Continued)

Note 3 - Investment Securities (continued)

Management has determined that the unrealized losses at June 30, 2016 are primarily due to fluctuations in market interest rates and do not reflect credit quality deterioration of the securities.   Because LCNB does not have the intent to sell the investments and it is more likely than not that LCNB will not be required to sell the investments before recovery of their amortized cost bases, which may be at maturity, LCNB does not consider these investments to be other-than-temporarily impaired.

Contractual maturities of investment securities at June 30, 2016 were as follows (in thousands).  Actual maturities may differ from contractual maturities when issuers have the right to call or prepay obligations.

	Available-for-Sale			Held-to-Maturity
	Amortized Cost		Fair Value	Amortized Cost	Fair Value
Due within one year	$	23,089	23,181	3,620	3,626
Due from one to five years	150,743		153,748	4,211	4,222
Due from five to ten years	121,380		124,583	11,073	11,239
Due after ten years	506		514	20,543	21,195
	295,718		302,026	39,447	40,282
U.S. Agency mortgage-backed securities	47,701		48,276	—	—
Mutual funds	2,508		2,499	—	—
Trust preferred securities	49		49	—	—
Equity securities	633		678	—	—
	$	346,609	353,528	39,447	40,282

Investment securities with a market value of $228,901,000 and $215,952,000 at June 30, 2016 and December 31, 2015, respectively, were pledged to secure public deposits and for other purposes required as permitted by law.

Certain information concerning the sale of investment securities available-for-sale for the three and six months ended June 30, 2016 and 2015 was as follows (in thousands):

	Three Months Ended   June 30,			Six Months Ended   June 30,
	2016		2015	2016		2015
Proceeds from sales	$	16,100	48,953	$	36,529	54,955
Gross realized gains	300		234	671		345
Gross realized losses	21		13	21		13

11

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

(Continued)

Note 4 - Loans

Major classifications of loans at June 30, 2016 and December 31, 2015 are as follows (in thousands):

	June 30, 2016		December 31, 2015
Commercial and industrial	$	45,153	45,275
Commercial, secured by real estate	455,654		419,633
Residential real estate	266,625		273,139
Consumer	18,545		18,510
Agricultural	13,605		13,479
Other loans, including deposit overdrafts	635		665
	800,217		770,701
Deferred net origination costs (fees)	248		237
	800,465		770,938
Less allowance for loan losses	3,373		3,129
Loans, net	$	797,092	767,809

All advances from the Federal Home Loan Bank ("FHLB") of Cincinnati are secured by a blanket pledge of LCNB's 1-4 family first lien mortgage loans in the amount of approximately $225 million and $231 million at June 30, 2016 and December 31, 2015, respectively.  Additionally, LCNB is required to hold minimum levels of FHLB stock, based on the outstanding borrowings.

Loans acquired through mergers are recorded at fair value with no carryover of the acquired entity's previously established allowance for loan losses.  The excess of expected cash flows over the estimated fair value of acquired loans is recognized as interest income over the remaining contractual lives of the loans using the level yield method. Subsequent decreases in expected cash flows will require additions to the allowance for loan losses.  Subsequent improvements in expected cash flows result in the recognition of additional interest income over the then-remaining contractual lives of the loans.

Impaired loans acquired are accounted for under FASB ASC 310-30.  Factors considered in evaluating whether an acquired loan was impaired include delinquency status and history, updated borrower credit status, collateral information, and updated loan-to-value information.  The difference between contractually required payments at the time of acquisition and the cash flows expected to be collected is referred to as the nonaccretable difference.  The interest component of the cash flows expected to be collected is referred to as the accretable yield and is recognized as interest income over the remaining contractual life of the loan using the level yield method.   Subsequent decreases in expected cash flows will require additions to the allowance for loan losses.  Subsequent improvements in expected cash flows will result in a reclassification from the nonaccretable difference to the accretable yield.

12

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

(Continued)

Note 4 – Loans (continued)

Non-accrual, past-due, and accruing restructured loans as of June 30, 2016 and December 31, 2015 are as follows (in thousands):

	June 30, 2016		December 31, 2015
Non-accrual loans:
Commercial and industrial	$	—	—
Commercial, secured by real estate	1,362		876
Residential real estate	951		799
Consumer	—		—
Agricultural	384		48
Total non-accrual loans	2,697		1,723
Past-due 90 days or more and still accruing	369		559
Total non-accrual and past-due 90 days or more and still accruing	3,066		2,282
Accruing restructured loans	13,855		13,723
Total	$	16,921	16,005

13

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

(Continued)

Note 4 – Loans (continued)

The allowance for loan losses for the three and six months ended June 30, 2016 and 2015 are as follows (in thousands):

	Commercial & Industrial			Commercial, Secured by Real Estate		Residential Real Estate		Consumer		Agricultural		Other		Total
Three Months Ended June 30, 2016
Allowance for loan losses:
Balance, beginning of period	$	247		1,868		896		81		56		2		3,150
Provision charged to expenses	74			320		(1	)	(12	)	6		9		396
Losses charged off	(49		)	(117	)	(14	)	(9	)	—		(19	)	(208	)
Recoveries	1			—		4		20		—		10		35
Balance, end of period	$	273		2,071		885		80		62		2		3,373
Six Months Ended June 30, 2016
Allowance for loan losses:
Balance, beginning of year	$	244		1,908		854		54		66		3		3,129
Provision charged to expenses	74			285		65		49		(4	)	17		486
Losses charged off	(49		)	(140	)	(42	)	(53	)	—		(42	)	(326	)
Recoveries	4			18		8		30		—		24		84
Balance, end of period	$	273		2,071		885		80		62		2		3,373
Three Months Ended June 30, 2015
Allowance for loan losses:
Balance, beginning of period	$	131		1,640		934		54		77		1		2,837
Provision charged to expenses	41			552		53		16		6		9		677
Losses charged off	(11		)	(633	)	(115	)	(18	)	(67	)	(12	)	(856	)
Recoveries	1			96		42		10		67		5		221
Balance, end of period	$	162		1,655		914		62		83		3		2,879
Six Months Ended June 30, 2015
Allowance for loan losses:
Balance, beginning of year	$	129		1,990		926		63		11		2		3,121
Provision charged to expenses	42			515		117		(13	)	72		13		746
Losses charged off	(11		)	(946	)	(197	)	(29	)	(67	)	(26	)	(1,276	)
Recoveries	2			96		68		41		67		14		288
Balance, end of period	$	162		1,655		914		62		83		3		2,879

14

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

(Continued)

Note 4 – Loans (continued)

A breakdown of the allowance for loan losses and the loan portfolio by loan segment at June 30, 2016 and December 31, 2015 are as follows (in thousands):

	Commercial & Industrial		Commercial, Secured by Real Estate	Residential Real Estate	Consumer	Agricultural	Other	Total
June 30, 2016
Allowance for loan losses:
Individually evaluated for impairment	$	6	195	90	9	—	—	300
Collectively evaluated for impairment	267		1,875	795	71	62	2	3,072
Acquired credit impaired loans	—		1	—	—	—	—	1
Balance, end of period	$	273	2,071	885	80	62	2	3,373
Loans:
Individually evaluated for impairment	$	354	12,672	1,584	47	384	—	15,041
Collectively evaluated for impairment	43,452		436,405	262,558	18,571	13,230	164	774,380
Acquired credit impaired loans	1,363		6,249	2,941	20	—	471	11,044
Balance, end of period	$	45,169	455,326	267,083	18,638	13,614	635	800,465
December 31, 2015
Allowance for loan losses:
Individually evaluated for impairment	$	9	306	48	—	—	—	363
Collectively evaluated for impairment	235		1,602	806	54	66	3	2,766
Acquired credit impaired loans	—		—	—	—	—	—	—
Balance, end of period	$	244	1,908	854	54	66	3	3,129
Loans:
Individually evaluated for impairment	$	370	12,351	1,541	56	—	—	14,318
Collectively evaluated for impairment	43,726		399,092	269,001	18,516	13,438	179	743,952
Acquired credit impaired loans	1,191		7,877	3,039	27	48	486	12,668
Balance, end of period	$	45,287	419,320	273,581	18,599	13,486	665	770,938

15

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

(Continued)

Note 4 – Loans (continued)

The risk characteristics of LCNB's material loan portfolio segments are as follows:

Commercial and Industrial Loans. LCNB’s commercial and industrial loan portfolio consists of loans for various purposes, including loans to fund working capital requirements (such as inventory and receivables financing) and purchases of machinery and equipment.  LCNB offers a variety of commercial and industrial loan arrangements, including term loans, balloon loans, and lines of credit.  Most commercial and industrial loans have a variable rate, with adjustment periods ranging from one month to five years.  Adjustments are generally based on a publicly available index rate plus a margin.  The margin varies based on the terms and collateral securing the loan.  Commercial and industrial loans are offered to businesses and professionals for short and medium terms on both a collateralized and uncollateralized basis. Commercial and industrial loans typically are underwritten on the basis of the borrower’s ability to make repayment from the cash flow of the business.  Collateral, when obtained, may include liens on furniture, fixtures, equipment, inventory, receivables, or other assets.  As a result, such loans involve complexities, variables, and risks that require thorough underwriting and more robust servicing than other types of loans.

Commercial, Secured by Real Estate Loans.  Commercial real estate loans include loans secured by a variety of commercial, retail, and office buildings, religious facilities, multifamily (more than two-family) residential properties, construction and land development loans, and other land loans. Commercial real estate loan products generally amortize over five to twenty-five years and are payable in monthly principal and interest installments.  Some have balloon payments due within one to ten years after the origination date.  Many have adjustable interest rates with adjustment periods ranging from one to ten years, some of which are subject to established “floor” interest rates.

Commercial real estate loans are underwritten based on the ability of the property, in the case of income producing property, or the borrower’s business to generate sufficient cash flow to amortize the debt. Secondary emphasis is placed upon global debt service, collateral value, financial strength of any guarantors, and other factors. Commercial real estate loans are generally originated with a 75% maximum loan to appraised value ratio.

Residential Real Estate Loans.  Residential real estate loans include loans secured by first or second mortgage liens on one to two-family residential property.  Home equity lines of credit and mortgage loans secured by owner-occupied agricultural property are included in this category.  First and second mortgage loans are generally amortized over five to thirty years with monthly principal and interest payments.  Home equity lines of credit generally have a five year draw period with interest only payments followed by a repayment period with monthly payments based on the amount outstanding.  LCNB offers both fixed and adjustable rate mortgage loans.  Adjustable rate loans are available with adjustment periods ranging between one to ten years and adjust according to an established index plus a margin, subject to certain floor and ceiling rates.  Home equity lines of credit have a variable rate based on the Wall Street Journal prime rate plus a margin.

LCNB does not originate reverse mortgage loans or residential real estate loans generally considered to be “subprime.”

Residential real estate loans are underwritten primarily based on the borrower’s ability to repay, prior credit history, and the value of the collateral.  LCNB generally requires private mortgage insurance for first mortgage loans that have a loan to appraised value ratio of greater than 80%.

Consumer Loans.  LCNB’s portfolio of consumer loans generally includes secured and unsecured loans to individuals for household, family and other personal expenditures.  Secured loans include loans to fund the purchase of automobiles, recreational vehicles, boats, and similar acquisitions. Consumer loans made by LCNB generally have fixed rates and terms ranging up to 72 months, depending upon the nature of the collateral, size of the loan, and other relevant factors.

Consumer loans generally have higher interest rates, but pose additional risks of collectability and loss when compared to certain other types of loans. Collateral, if present, is generally subject to damage, wear, and depreciation.  The borrower’s ability to repay is of primary importance in the underwriting of consumer loans.

Agricultural Loans.  LCNB’s portfolio of agricultural loans includes loans for financing agricultural production or for financing the purchase of equipment used in the production of agricultural products.  LCNB’s agricultural loans are generally secured by farm machinery, livestock, crops, vehicles, or other agricultural related collateral.

16

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

(Continued)

Note 4 – Loans (continued)

LCNB uses a risk-rating system to quantify loan quality.  A loan is assigned to a risk category based on relevant information about the ability of the borrower to service the debt including, but not limited to, current financial information, historical payment experience, credit documentation, public information, and current economic trends.  The categories used are:

• Pass – loans categorized in this category are higher quality loans that do not fit any of the other categories described below.

• Other Assets Especially Mentioned (OAEM) - loans in this category are currently protected but are potentially weak. These loans constitute a risk but not to the point of justifying a classification of substandard.  The credit risk may be relatively minor yet constitute an undue risk in light of the circumstances surrounding a specific asset.

• Substandard – loans in this category are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any.  Assets so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.  They are characterized by the possibility that LCNB will sustain some loss if the deficiencies are not corrected.

• Doubtful – loans classified in this category have all the weaknesses inherent in loans classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

A breakdown of the loan portfolio by credit quality indicators at June 30, 2016 and December 31, 2015 is as follows (in thousands):

	Pass		OAEM	Substandard	Doubtful	Total
June 30, 2016
Commercial & industrial	$	44,477	39	653	—	45,169
Commercial, secured by real estate	438,822		4,487	12,017	—	455,326
Residential real estate	261,423		998	4,662	—	267,083
Consumer	18,528		—	110	—	18,638
Agricultural	12,037		850	727	—	13,614
Other	635		—	—	—	635
Total	$	775,922	6,374	18,169	—	800,465
December 31, 2015
Commercial & industrial	$	44,596	—	691	—	45,287
Commercial, secured by real estate	397,938		9,316	12,066	—	419,320
Residential real estate	267,567		1,935	4,079	—	273,581
Consumer	18,528		—	71	—	18,599
Agricultural	12,246		850	390	—	13,486
Other	665		—	—	—	665
Total	$	741,540	12,101	17,297	—	770,938

17

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

(Continued)

Note 4 – Loans (continued)

A loan portfolio aging analysis at June 30, 2016 and December 31, 2015 is as follows (in thousands):

	30-59 Days Past Due		60-89 Days Past Due	Greater Than 90 Days Past Due	Total Past Due	Current	Total Loans Receivable	Total Loans Greater Than 90 Days and Accruing
June 30, 2016
Commercial & industrial	$	15	—	—	15	45,154	45,169	—
Commercial, secured by real estate	—		—	1,362	1,362	453,964	455,326	—
Residential real estate	590		436	1,140	2,166	264,917	267,083	335
Consumer	16		22	34	72	18,566	18,638	34
Agricultural	44		—	384	428	13,186	13,614	—
Other	97		—	—	97	538	635	—
Total	$	762	458	2,920	4,140	796,325	800,465	369
December 31, 2015
Commercial & industrial	$	—	—	—	—	45,287	45,287	—
Commercial, secured by real estate	73		81	876	1,030	418,290	419,320	—
Residential real estate	777		198	1,124	2,099	271,482	273,581	516
Consumer	62		7	43	112	18,487	18,599	43
Agricultural	—		—	—	—	13,486	13,486	—
Other	109		—	—	109	556	665	—
Total	$	1,021	286	2,043	3,350	767,588	770,938	559

18

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

(Continued)

Note 4 – Loans (continued)

Impaired loans, including acquired credit impaired loans, at June 30, 2016 and December 31, 2015 are as follows (in thousands):

	Recorded Investment		Unpaid Principal Balance	Related Allowance
June 30, 2016
With no related allowance recorded:
Commercial & industrial	$	1,362	1,635	—
Commercial, secured by real estate	16,289		18,063	—
Residential real estate	3,808		4,980	—
Consumer	33		48	—
Agricultural	384		384	—
Other	471		665	—
Total	$	22,347	25,775	—
With an allowance recorded:
Commercial & industrial	$	355	354	6
Commercial, secured by real estate	2,632		2,709	196
Residential real estate	717		855	90
Consumer	34		34	9
Agricultural	—		—	—
Other	—		—	—
Total	$	3,738	3,952	301
Total:
Commercial & industrial	$	1,717	1,989	6
Commercial, secured by real estate	18,921		20,772	196
Residential real estate	4,525		5,835	90
Consumer	67		82	9
Agricultural	384		384	—
Other	471		665	—
Total	$	26,085	29,727	301
December 31, 2015
With no related allowance recorded:
Commercial & industrial	$	1,205	1,500	—
Commercial, secured by real estate	16,345		18,335	—
Residential real estate	3,734		5,055	—
Consumer	81		109	—
Agricultural	48		151	—
Other	486		701	—
Total	$	21,899	25,851	—
With an allowance recorded:
Commercial & industrial	$	356	356	9
Commercial, secured by real estate	3,883		4,014	306
Residential real estate	846		958	48
Consumer	2		1	—
Agricultural	—		—	—
Other	—		—	—
Total	$	5,087	5,329	363
Total:
Commercial & industrial	$	1,561	1,856	9
Commercial, secured by real estate	20,228		22,349	306
Residential real estate	4,580		6,013	48
Consumer	83		110	—
Agricultural	48		151	—
Other	486		701	—
Total	$	26,986	31,180	363

19

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

(Continued)

Note 4 – Loans (continued)

The following presents information related to the average recorded investment and interest income recognized on impaired loans, including acquired credit impaired loans, for the three and six months ended June 30, 2016 and 2015 (in thousands):

	2016			2015
	Average Recorded Investment		Interest Income Recognized	Average Recorded Investment	Interest Income Recognized
Three Months Ended June 30,
With no related allowance recorded:
Commercial & industrial	$	964	26	1,609	60
Commercial, secured by real estate	17,292		278	19,259	742
Residential real estate	3,855		123	4,175	138
Consumer	40		8	93	3
Agricultural	423		123	110	35
Other	495		20	516	20
Total	$	23,069	578	25,762	998
With an allowance recorded:
Commercial & industrial	$	358	5	389	6
Commercial, secured by real estate	2,651		20	3,746	29
Residential real estate	780		8	884	10
Consumer	34		1	18	—
Agricultural	—		—	—	—
Other	—		—	—	—
Total	$	3,823	34	5,037	45
Total:
Commercial & industrial	$	1,322	31	1,998	66
Commercial, secured by real estate	19,943		298	23,005	771
Residential real estate	4,635		131	5,059	148
Consumer	74		9	111	3
Agricultural	423		123	110	35
Other	495		20	516	20
Total	$	26,892	612	30,799	1,043
Six Months Ended June 30,
With no related allowance recorded:
Commercial & industrial	$	964	55	1,437	82
Commercial, secured by real estate	17,460		660	20,317	1,099
Residential real estate	3,823		194	4,305	221
Consumer	54		15	101	7
Agricultural	422		135	107	132
Other	495		40	515	39
Total	$	23,218	1,099	26,782	1,580
With an allowance recorded:
Commercial & industrial	$	362	10	393	11
Commercial, secured by real estate	2,671		42	3,694	56
Residential real estate	760		16	862	20
Consumer	34		2	18	1
Agricultural	—		—	—	—
Other	—		—	—	—
Total	$	3,827	70	4,967	88
Total:
Commercial & industrial	$	1,326	65	1,830	93
Commercial, secured by real estate	20,131		702	24,011	1,155
Residential real estate	4,583		210	5,167	241
Consumer	88		17	119	8
Agricultural	422		135	107	132
Other	495		40	515	39
Total	$	27,045	1,169	31,749	1,668

20

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

(Continued)

Note 4 – Loans (continued)

Of the interest income recognized on impaired loans during the six months ended June 30, 2016 and 2015, approximately $46,000 and $11,000, respectively, were recognized on a cash basis.

Loan modifications that were classified as troubled debt restructurings during the three and six months ended June 30, 2016 and 2015 are as follows (dollars in thousands):

	2016				2015
	Number of Loans	Pre-Modification Recorded Balance		Post-Modification Recorded Balance	Number of Loans	Pre-Modification Recorded Balance		Post-Modification Recorded Balance
Three Months Ended June 30,
Commercial & industrial	—	$	—	—	1	$	72	74
Commercial, secured by real estate	—	—		—	—	—		—
Residential real estate	1	27		27	1	50		50
Consumer	1	10		10	—	—		—
Total	2	$	37	37	2	$	122	124
Six Months Ended June 30,
Commercial & industrial	—	$	—	—	1	$	72	74
Commercial, secured by real estate	1	$	299	372	—	—		—
Residential real estate	2	45		45	4	137		137
Consumer	2	27		27	—	—		—
Total	5	$	371	444	5	$	209	211

Each restructured loan is separately negotiated with the borrower and includes terms and conditions that reflect the borrower's ability to pay the debt as modified.  Modifications may include interest only payments for a period of time, temporary or permanent reduction of the loan's interest rate, capitalization of delinquent interest, or extensions of the maturity date.

LCNB is not committed to lend additional funds to borrowers whose loan terms were modified in a troubled debt restructuring.

There were no troubled debt restructurings that subsequently defaulted within twelve months of the restructuring date for the six months ended June 30, 2016 and that remained in default at period end. A restructured commercial real estate loan with a recorded balance of $77,000 was classified as non-accrual at June 30, 2015, which was within twelve months of the loan's modification date.

21

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

(Continued)

Note 5 - Acquired Credit Impaired Loans

The following table provides at June 30, 2016 and December 31, 2015 the major classifications of acquired credit impaired loans that are accounted for in accordance with FASB ASC 310-30 (in thousands):

	June 30, 2016		December 31, 2015
Commercial & industrial	$	1,363	1,191
Commercial, secured by real estate	6,249		7,877
Residential real estate	2,941		3,039
Consumer	20		27
Agricultural	—		48
Other loans, including deposit overdrafts	471		486
	11,044		12,668
Less allowance for loan losses	1		—
Loans, net	$	11,043	12,668

The following table provides the outstanding balance and related carrying amount for acquired credit impaired loans at the dates indicated (in thousands):

	June 30, 2016		December 31, 2015
Outstanding balance	$	14,369	16,507
Carrying amount	11,043		12,668

Activity during the six months ended June 30, 2016 and 2015 for the accretable discount related to acquired credit impaired loans is as follows (in thousands):

	2016			2015
Accretable discount at beginning of year	$	1,503		2,674
Accretable discount acquired during period	—			413
Reclass from nonaccretable discount to accretable discount	307			943
Less disposals	(3		)	(857	)
Less accretion	(439		)	(1,404	)
Accretable discount at end of period	$	1,368		1,769

22

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

(Continued)

Note 6 – Other Real Estate Owned

Other real estate owned includes property acquired through foreclosure or deed-in-lieu of foreclosure and are included in "other assets" in the consolidated condensed balance sheets.  Changes in other real estate owned are as follows (in thousands):

	Six Months Ended June 30,
	2016			2015
Balance, beginning of year	$	846		1,370
Additions	182			99
Reductions due to sales	—			(105	)
Reductions due to valuation write downs	(346		)	—
Balance, end of period	$	682		1,364

Other real estate owned at June 30, 2016 and December 31, 2015 consisted of (dollars in thousands):

	June 30, 2016		December 31, 2015
Commercial real estate	$	682	$	846
Residential real estate	—		—
	$	682	$	846

The total recorded investment in residential consumer mortgage loans secured by residential real estate that was in the process of foreclosure at June 30, 2016 was $477,000. 

Note 7 - Affordable Housing Tax Credit Limited Partnership

LCNB is a limited partner in a limited partnership that sponsors affordable housing projects utilizing the Low Income Housing Tax Credit (LIHTC) pursuant to Section 42 of the Internal Revenue Code. The purpose of this investment is to achieve a satisfactory return on capital, to facilitate the sale of additional affordable housing product offerings, and to assist in achieving goals associated with the Community Reinvestment Act. The primary activities of the limited partnership include the identification, development, and operation of multi-family housing that is leased to qualifying residential tenants.

The following table presents the balances of LCNB's affordable housing tax credit investment and related unfunded commitment at June 30, 2016 and December 31, 2015 (in thousands):

	June 30, 2016		December 31, 2015
Affordable housing tax credit investment	$	1,000	1,000
Less amortization	53		12
Net affordable housing tax credit investment	$	947	988
Unfunded commitment	$	865	907

LCNB expects to fund the unfunded commitment over 9.5 years.

23

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Continued)

Note 7 – Affordable Housing Tax Credit Limited Partnership (continued)

The following table presents other information relating to LCNB's affordable housing tax credit investment for the periods indicated (in thousands):

	Six Months ended June 30,
	2016		2015
Tax credits and other tax benefits recognized	$	55	—
Tax credit amortization expense included in provision for income taxes	41		—

Note 8 – Short-Term Borrowings

Short-term borrowings at June 30, 2016 and December 31, 2015 are as follows (dollars in thousands):

	June 30, 2016				December 31, 2015
	Amount		Rate		Amount		Rate
Line of credit	$	17,310	1.00	%	$	13,187	1.00	%
FHLB short-term advance	—		—	%	10,000		0.35	%
Repurchase agreements	13,231		0.10	%	14,200		0.10	%
	$	30,541	0.61	%	$	37,387	0.48	%

Repurchase agreements are an option customers may use in managing their cash positions and mature the next business day after issuance. Repurchase agreements at June 30, 2016 and December 31, 2015 were fully secured by U.S. Agency notes and such collateral securities were held by the Federal Reserve Bank.

Note 9 – Income Taxes

A reconciliation between the statutory income tax and LCNB's effective tax rate on income from continuing operations follows:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2016		2015		2016		2015
Statutory tax rate	34.2	%	34.0	%	34.2	%	34.0	%
Increase (decrease) resulting from:
Tax exempt interest	(6.6	)%	(5.4	)%	(6.4	)%	(5.4	)%
Tax exempt income on bank owned life insurance	(1.6	)%	(1.2	)%	(1.5	)%	(1.3	)%
Other, net	—	%	0.4	%	(0.1	)%	0.4	%
Effective tax rate	26.0	%	27.8	%	26.2	%	27.7	%

Note 10 - Commitments and Contingent Liabilities

LCNB is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers.  These financial instruments include commitments to extend credit.  They involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheets.  Exposure to credit loss in the event of nonperformance by the other parties to financial instruments for commitments to extend credit is represented by the contract amount of those instruments.

24

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

(Continued)

Note 10 – Commitments and Contingent Liabilities (continued)

The Bounce Protection product, a customer deposit overdraft program, is offered as a service and does not constitute a contract between the customer and LCNB.

LCNB uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.  

Financial instruments whose contract amounts represent off-balance-sheet credit risk at June 30, 2016 and December 31, 2015 are as follows (in thousands):

	June 30, 2016		December 31, 2015
Commitments to extend credit:
Commercial loans	$	6,956	8,160
Other loans
Fixed rate	5,395		2,293
Adjustable rate	1,707		1,362
Unused lines of credit:
Fixed rate	4,584		6,378
Adjustable rate	84,678		90,153
Unused overdraft protection amounts on demand and NOW accounts	9,858		10,057
Standby letters of credit	357		457
	$	113,535	118,860

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.  Unused lines of credit include amounts not drawn on line of credit loans.  Commitments to extend credit and unused lines of credit generally have fixed expiration dates or other termination clauses.

Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party.  These guarantees generally are fully secured and have varying maturities.  

LCNB evaluates each customer's credit worthiness on a case-by-case basis.  The amount of collateral obtained, if deemed necessary, is based on management's credit evaluation of the borrower.  Collateral held varies, but may include accounts receivable, inventory, residential realty, income-producing commercial property, and property, plant, and equipment.

Capital expenditures include the construction or acquisition of new office buildings, improvements to LCNB's offices, purchases of furniture and equipment, and additions or improvements to LCNB's information technology system. Commitments outstanding for capital expenditures as of June 30, 2016 totaled approximately $7,903,000, which includes estimated costs for construction of a new operations center in Lebanon, Ohio.

Management believes that LCNB has sufficient liquidity to fund its lending and capital expenditure commitments.

LCNB and its subsidiaries are parties to various claims and proceedings arising in the normal course of business.  Management, after consultation with legal counsel, believes that the liabilities, if any, arising from such proceedings and claims will not be material to the consolidated financial position or results of operations.

25

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

(Continued)

Note 11 – Accumulated Other Comprehensive Income

Changes in accumulated other comprehensive income for the six months ended June 30, 2016 and 2015 are as follows (in thousands):

	Unrealized Gains and Losses on Available-for-Sale Securities			Changes in Pension Plan Assets and Benefit Obligations		Total
June 30, 2016
Balance at beginning of period	$	469		(233	)	236
Before reclassifications	4,526			56		4,582
Reclassifications	(429		)	—		(429	)
Balance at end of period	$	4,566		(177	)	4,389
June 30, 2015
Balance at beginning of period	$	1,126		(341	)	785
Before reclassifications	(149		)	58		(91	)
Reclassifications	(219		)	—		(219	)
Balance at end of period	$	758		(283	)	475

Reclassifications out of accumulated other comprehensive income during the three and six months ended June 30, 2016 and 2015 and the affected line items in the consolidated condensed statements of income are as follows (in thousands):

	Three Months Ended June 30,			Six Months Ended June 30,			Affected Line Item in the Consolidated Condensed Statements of Income
	2016		2015	2016		2015
Realized gain on sale of securities	$	279	221	$	650	332	Net gain on sales of securities
Less provision for income taxes	95		75	221		113	Provision for income taxes
Reclassification adjustment, net of taxes	$	184	146	$	429	219

Note 12 – Retirement Plans

LCNB participates in a noncontributory defined benefit multi-employer retirement plan that covers substantially all regular full-time employees hired before January 1, 2009. Employees hired before this date who received a benefit reduction under certain amendments to the defined benefit retirement plan receive an automatic contribution of 5% or 7% of their annual compensation, depending on the sum of an employee's age and vesting service, into their defined contribution plans (401(k) plans), regardless of the contributions made by the employees.  These contributions are made annually and these employees do not receive any employer matches to their 401(k) contributions.

Employees hired on or after January 1, 2009 receive a 50% employer match on their contributions into the 401(k) plan, up to a maximum LCNB contribution of 3% of each individual employee's annual compensation.  

26

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

(Continued)

Note 12 – Retirement Plans (continued)

Funding and administrative costs of the qualified noncontributory defined benefit retirement plan and 401(k) plan charged to pension and other employee benefits in the consolidated condensed statements of income for the three and six-month periods ended June 30, 2016 and 2015 are as follows (in thousands):

	For the Three Months Ended June 30,			For the Six Months Ended June 30,
	2016		2015	2016		2015
Qualified noncontributory defined benefit retirement plan	$	220	273	$	440	543
401(k) plan	77		90	160		177

Certain highly compensated employees participate in a nonqualified defined benefit retirement plan.  The nonqualified plan ensures that participants receive the full amount of benefits to which they would have been entitled under the noncontributory defined benefit retirement plan in the absence of limits on benefit levels imposed by certain sections of the Internal Revenue Code.

The components of net periodic pension cost of the nonqualified defined benefit retirement plan for the three and six months ended June 30, 2016 and 2015 are summarized as follows (in thousands):

	Three Months Ended June 30,			Six Months Ended June 30,
	2016		2015	2016		2015
Service cost	$	10	10	$	20	19
Interest cost	19		17	38		34
Amortization of unrecognized net loss	42		43	84		85
Net periodic pension cost	$	71	70	$	142	138

Amounts recognized in accumulated other comprehensive income, net of tax, at June 30, 2016 and December 31, 2015 for the nonqualified defined benefit retirement plan consists of (in thousands):

	June 30, 2016		December 31, 2015
Net actuarial loss	$	177	233

Note 13 - Stock Based Compensation

LCNB established an Ownership Incentive Plan (the "2002 Plan") during 2002 that allowed for stock-based awards to eligible employees, as determined by the Board of Directors.  The awards were made in the form of stock options, share awards, and/or appreciation rights.  The 2002 Plan provided for the issuance of up to 200,000 shares. The 2002 Plan expired on April 16, 2012. Any outstanding unexercised options, however, continue to be exercisable in accordance with their terms.

The 2015 Ownership Incentive Plan (the "2015 Plan") was ratified by LCNB's shareholders at the annual meeting on April 28, 2015 and allows for stock-based awards to eligible employees, as determined by the Compensation Committee of the Board of Directors. Awards may be made in the form of stock options, appreciation rights, restricted shares, and/or restricted share units. The 2015 Plan provides for the issuance of up to 450,000 shares. The 2015 Plan will terminate on April 28, 2025 and is subject to earlier termination by the Compensation Committee.

Stock-based awards may be in the form of treasury shares or new shares.

27

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

(Continued)

Note 13 – Stock Based Compensation (continued)

LCNB has not granted stock option awards since 2012. Options granted to date under the 2002 Plan vest ratably over a five-year period and expire ten years after the date of grant. Stock options outstanding at June 30, 2016 were as follows:

	Outstanding Stock Options				Exercisable Stock Options
Exercise Price Range	Number	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)	Number	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)
$9.00 - $10.99	17,633	$	9.00	2.6	17,633	$	9.00	2.6
$11.00 - $12.99	53,266	12.04		4.1	51,521	12.03		4.0
$17.00 - $18.99	5,160	17.88		0.6	5,160	17.88		0.6
	76,059	11.73		3.5	74,314	11.71		3.4

The following table summarizes stock option activity for the periods indicated:

	2016				2015
	Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price
Outstanding, January 1,	83,861		$	12.39	99,810		$	12.16
Granted	—		—		—		—
Exercised	—		—		(13,449	)	11.31
Expired	(7,802	)	18.76		(2,500	)	9.00
Outstanding, June 30,	76,059		11.73		83,861		12.39
Exercisable, June 30,	74,314		11.71		75,072		12.40

The aggregate intrinsic value (the amount by which the current market value of the underlying stock exceeds the exercise price of the option) for options outstanding at June 30, 2016 that were "in the money" (market price greater than exercise price) was $320,000.  The aggregate intrinsic value at that date for only the options that were exercisable was $314,000.  The aggregate intrinsic value for options outstanding at June 30, 2015 that were in the money was $349,000 and the aggregate intrinsic value at that date for only the options that were exercisable was $314,000.  The intrinsic value changes based upon fluctuations in the market value of LCNB's common stock.

Total expense related to options included in salaries and employee benefits for the three and six months ended June 30, 2016 was $1,000 and $2,000, respectively. The related tax benefit for the three and six months ended June 30, 2016 was $0 and $1,000, respectively. Total expense related to options included in salaries and employee benefits for the three and six months ended June 30, 2015 was $3,000 and $10,000, respectively. The related tax benefit for the three and six months ended June 30, 2015 was $1,000 and $3,000, respectively. Unrecognized compensation cost related to option awards to be recognized through the first quarter of 2017 is approximately $4,000.

28

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

(Continued)

Note 13 – Stock Based Compensation (continued)

Restricted stock awards granted under the 2015 Plan were as follows:

	2016				2015
	Shares		Weighted Average Grant Date Fair Value		Shares	Weighted Average Grant Date Fair Value
Outstanding, January 1,	16,038		$	15.47	—	$	—
Granted	—		—		—	—
Vested	(5,255	)	15.47		—	—
Forfeited	—		—		—	—
Outstanding, June 30,	10,783		$	15.47	—	$	—

Total expense related to restricted stock awards included in salaries and wages in the consolidated condensed statements of income for the three and six months ended June 30, 2016 was $23,000 and $45,000, respectively. The related tax benefit for the three and six months end June 30, 2016 was $7,000 and $15,000, respectively. Unrecognized compensation expense for restricted stock awards was $113,000 at June 30, 2016 and is expected to be recognized over a period of 4.5 years.

Note 14 - Earnings per Common Share

Basic earnings per common share is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period.  Diluted earnings per common share is adjusted for the dilutive effects of stock options, warrants, and restricted stock.  The diluted average number of common shares outstanding has been increased for the assumed exercise of stock options and warrants with proceeds used to purchase treasury shares at the average market price for the period.  The computations are as follows for the three and six months ended June 30, 2016 and 2015 (dollars in thousands, except share and per share data):

	For the Three Months Ended June 30,			For the Six Months Ended June 30,
	2016		2015	2016		2015
Net income	$	2,968	3,123	$	5,932	5,957
Weighted average number of shares outstanding used in the calculation of basic earnings per common share	9,922,024		9,694,732	9,919,070		9,504,739
Add dilutive effect of:
Stock options	18,299		18,955	17,767		17,629
Stock warrants	—		91,041	32,465		86,682
Restricted shares	3,474		—	2,598		—
Adjusted weighted average number of shares outstanding used in the calculation of diluted earnings per common share	9,943,797		9,804,728	9,971,900		9,609,050
Earnings per common share:
Basic	$	0.30	0.33	$	0.60	0.63
Diluted	0.29		0.32	0.59		0.62

Options to purchase 5,160 and 12,962 shares of common stock at a weighted average price of $17.88 and $18.41 per share were outstanding at June 30, 2016 and 2015, respectively, but were not included in the computation of diluted earnings per common share because the exercise prices of the options were greater than the average market price of the common shares.

29

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

(Continued)

Note 15 - Fair Value Measurements

LCNB measures certain assets at fair value using various valuation techniques and assumptions, depending on the nature of the asset.  Fair value is defined as the price that would be received from the sale of an asset in an orderly transaction between market participants at the measurement date.

The inputs to the valuation techniques used to measure fair value are assigned to one of three broad levels:

• Level 1 – quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the reporting date.

• Level 2 – inputs other than quoted prices included within level 1 that are observable for the asset or liability either directly or indirectly.  Level 2 inputs may include quoted prices for similar assets in active markets,  quoted prices for identical assets or liabilities in markets that are not active, inputs other than quoted prices (such as interest rates or yield curves) that are observable for the asset or liability, and inputs that are derived from or corroborated by observable market data.

• Level 3 - inputs that are unobservable for the asset or liability.

The majority of LCNB's financial debt securities are classified as available-for-sale.  The securities are reported at fair value with unrealized holding gains and losses reported net of income taxes in accumulated other comprehensive income.

LCNB utilizes a pricing service for determining the fair values of most of its investment securities.  Fair value for U.S. Treasury notes are determined based on market quotations (level 1).  Fair value for most of the other investment securities is calculated using the discounted cash flow method for each security.  The discount rates for these cash flows are estimated by the pricing service using rates observed in the market (level 2).  Cash flow streams are dependent on estimated prepayment speeds and the overall structure of the securities given existing market conditions.  In addition, LCNB has invested in trust preferred securities, equity securities, and three mutual funds that are not priced by the pricing service. Market quotations (level 1) are used to determine fair values for the trust preferred securities, equity securities, and a publicly traded mutual fund. Investments in two mutual funds that are measured at fair value using net asset values ("NAV") per share as a practical expedient are not required to be classified in the fair value hierarchy.  These funds can be redeemed at any time at their current NAVs. An investment in a mutual fund that is not traded in an active market is considered to have level 2 inputs because an investor can have its interest in the fund redeemed for the balance of its capital account at any quarter-end assuming the fund is given a 60 day notice.  The investment in this fund is carried at fair value, which approximates cost.

Assets that may be recorded at fair value on a nonrecurring basis include impaired loans, other real estate owned, and other repossessed assets.  A loan is considered impaired when management believes it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement.  Impaired loans are carried at the present value of estimated future cash flows using the loan's existing rate or the fair value of collateral if the loan is collateral dependent, if this value is less than the loan balance.  The inputs are considered to be level 3.

Other real estate owned is adjusted to fair value upon transfer of the loan to foreclosed assets, usually based on an appraisal of the property.  Subsequently, foreclosed assets are carried at the lower of carrying value or fair value.  These inputs are also considered to be level 3.

30

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

(Continued)

Note 15 - Fair Value Measurements (continued)

The following table summarizes the valuation of LCNB's assets recorded at fair value by input levels as of June 30, 2016 and December 31, 2015 (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)
June 30, 2016
Recurring fair value measurements:
	Investment securities available-for-sale:
	U.S. Treasury notes	$	53,981	53,981	—	—
	U.S. Agency notes	115,338		—	115,338	—
	U.S. Agency mortgage-backed securities	48,276		—	48,276	—
	Certificates of deposit with other banks	248		—	248	—
	Municipal securities:
	Non-taxable	111,233		—	111,233	—
	Taxable	21,226		—	21,226	—
	Mutual funds	1,000		—	1,000	—
	Mutual funds measured at net asset value (a)	1,499
	Trust preferred securities	49		49	—	—
	Equity securities	678		678	—	—
	Total recurring fair value measurements	$	353,528	54,708	297,321	—
Nonrecurring fair value measurements:
	Impaired loans	$	3,483	—	—	3,483
	Other real estate owned and repossessed assets	682		—	—	682
	Total nonrecurring fair value measurements	$	4,165	—	—	4,165
December 31, 2015
Recurring fair value measurements:
	Investment securities available-for-sale:
	U.S. Treasury notes	$	72,846	72,846	—	—
	U.S. Agency notes	139,889		—	139,889	—
	U.S. Agency mortgage-backed securities	29,378		—	29,378	—
	Certificates of deposit with other banks	249		—	249	—
	Municipal securities:
	Non-taxable	105,479		—	105,479	—
	Taxable	26,941		—	26,941	—
	Mutual funds	1,018		18	1,000	—
	Mutual funds measured at net asset value (a)	1,448
	Trust preferred securities	50		50	—	—
	Equity securities	680		680	—	—
	Total recurring fair value measurements	$	377,978	73,594	302,936	—
Nonrecurring fair value measurements:
	Impaired loans	$	4,722	—	—	4,722
	Other real estate owned and repossessed assets	846		—	—	846
	Total nonrecurring fair value measurements	$	5,568	—	—	5,568
(a)	In accordance with Subtopic 820-10, certain investments that are measured at fair value using the net asset value per share practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Consolidated Condensed Balance Sheets.

31

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

(Continued)

Note 15 - Fair Value Measurements (continued)

The following table presents quantitative information about unobservable inputs used in nonrecurring level 3 fair value measurements at June 30, 2016 and December 31, 2015 (dollars in thousands):

					Range
	Fair Value		Valuation Technique	Unobservable Inputs	High		Low		Weighted Average
June 30, 2016
Impaired loans	$	3,483	Estimated sales price	Adjustments for comparable properties, discounts to reflect current market conditions	Not applicable
			Discounted cash flows	Discount rate	8.25	%	4.44	%	5.49	%
Other real estate owned	682		Estimated sales price	Adjustments for comparable properties, discounts to reflect current market conditions	Not applicable
December 31, 2015
Impaired loans	$	4,722	Estimated sales price	Adjustments for comparable properties, discounts to reflect current market conditions	Not applicable
			Discounted cash flows	Discount rate	11.00	%	4.00	%	5.27	%
Other real estate owned	846		Estimated sales price	Adjustments for comparable properties, discounts to reflect current market conditions	Not applicable

32

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

(Continued)

Note 15 - Fair Value Measurements (continued)

Carrying amounts and estimated fair values of financial instruments as of June 30, 2016 and December 31, 2015 are as follows (in thousands):

				Fair Value Measurements at the End of the Reporting Period Using
	Carrying Amount		Fair Value	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
June 30, 2016
FINANCIAL ASSETS:
Cash and cash equivalents	$	19,007	19,007	19,007	—	—
Investment securities, held-to-maturity	39,447		40,282	—	—	40,282
Federal Reserve Bank stock	2,732		2,732	2,732	—	—
Federal Home Loan Bank stock	3,638		3,638	3,638	—	—
Loans, net	797,092		792,749	—	—	792,749
Accrued interest receivable	3,514		3,514	168	1,186	2,160
FINANCIAL LIABILITIES:
Deposits	1,124,698		1,125,291	908,910	216,381	—
Short-term borrowings	30,541		30,541	30,541	—	—
Long-term debt	726		749	—	749	—
Accrued interest payable	296		296	15	281	—
December 31, 2015
FINANCIAL ASSETS:
Cash and cash equivalents	$	14,987	14,987	14,987	—	—
Investment securities, held-to-maturity	22,633		22,630	—	—	22,630
Federal Reserve Bank stock	2,732		2,732	2,732	—	—
Federal Home Loan Bank stock	3,638		3,638	3,638	—	—
Loans, net	767,809		761,388	—	—	761,388
Accrued interest receivable	3,380		3,380	208	1,280	1,892
FINANCIAL LIABILITIES:
Deposits	1,087,160		1,087,914	869,940	217,974	—
Short-term borrowings	37,387		37,387	37,387	—	—
Long-term debt	5,947		6,290	—	6,290	—
Accrued interest payable	345		345	16	329	—

33

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

(Continued)

Note 15 - Fair Value Measurements (continued)

The fair values of off-balance-sheet financial instruments at June 30, 2016 and December 31, 2015 were not material.

Fair values of financial instruments are based on various assumptions, including the discount rate and estimates of future cash flows. Therefore, the fair values presented may not represent amounts that could be realized in actual transactions.  In addition, because the required disclosures exclude certain financial instruments and all nonfinancial instruments, any aggregation of the fair value amounts presented would not represent the underlying value of LCNB.  The following methods and assumptions were used to estimate the fair value of certain financial instruments:

Cash and cash equivalents

The carrying amounts presented are deemed to approximate fair value.

Investment securities, held-to-maturity

Fair values for investment securities, held-to-maturity are based on quoted market prices for similar securities and/or discounted cash flow analysis or other methods.  

Federal Home Loan Bank stock and Federal Reserve Bank stock

The carrying value of Federal Home Loan Bank and Federal Reserve Bank stock approximates fair value based on the respective redemptive provisions.

Loans

Fair value is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities, incorporating assumptions of current and projected prepayment speeds.  These current rates approximate market rates.

Deposits

The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date.  The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities, which approximates market rates.

Borrowings

The carrying amounts of federal funds purchased, repurchase agreements, and U.S. Treasury demand note borrowings are deemed to approximate fair value of short-term borrowings.  For long-term debt, fair values are estimated based on the discounted value of expected net cash flows using current interest rates.

Accrued interest receivable and Accrued interest payable

Carrying amount approximates fair value and is aligned with the underlying assets or liabilities.

Note 16 – Recent Accounting Pronouncements

From time to time the Financial Accounting Standards Board issues an Accounting Standards Update ("ASU") to communicate changes to Generally Accepted Accounting Principles. 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 operations:

34

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

(Continued)

Note 16 – Recent Accounting Pronouncements (continued)

ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)"

ASU No. 2014-09 was issued in May 2014 and supersedes most current revenue recognition guidance for contracts to transfer goods or services or other nonfinancial assets. Lease contracts, insurance contracts, and most financial instruments are not included in the scope of this update. ASU No. 2014-09 provides that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance enumerates five steps that entities should follow in achieving this core principle. Additional disclosures providing information about contracts with customers are required. As extended by ASU No. 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date," ASU No. 2014-09 is effective for public companies for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Transitional guidance is included in the update. Earlier adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. Since LCNB's products are substantially financial in nature, adoption of ASU No. 2014-09 is not expected to have a material impact on LCNB's results of operations or financial position.

ASU No. 2014-15, "Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern"

ASU No. 2014-15 was issued in August 2014 and requires management to evaluate for each annual and interim reporting period whether it is probable that the entity will not be able to meet its obligations as they become due within one year after the date that financial statements are issued (or are available to be issued, where applicable). Certain disclosures, as described in the update, are required if management identifies substantial doubt about the entity's ability to continue as a going concern. ASU No. 2014-15 will take effect in the annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early application is permitted. Adoption of ASU No. 2014-15 is not expected to have a material impact on LCNB's results of operations or financial position.

ASU No. 2016-01, "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities"

ASU No. 2016-01 was issued in January 2016 and applies to all entities that hold financial assets or owe financial liabilities. It makes targeted changes to generally accepted accounting principles for public companies as follows:

1. Requires most equity investments to be measured at fair value with changes in fair value recognized in net income.

2. Simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value.

3. Eliminates the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet.

4. Requires use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes.

5. Requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments.

6. Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements.

7. Clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets.

For public business entities, the new guidance is effective for annual reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2017. Adoption of ASU No. 2016-01 is not expected to have a material impact on LCNB's results of operations or financial position.

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LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

(Continued)

Note 16 – Recent Accounting Pronouncements (continued)

ASU No. 2016-02, "Leases (Topic 842)"

ASU No. 2016-02 was issued in February 2016 and requires a lessee to recognize in the statement of financial position a liability to make lease payments ("the lease liability") and a right-of-use asset representing its right to use the underlying asset for the lease term, initially measured at the present value of the lease payments. When measuring assets and liabilities arising from a lease, the lessee should include payments to be made in optional periods only if the lessee is reasonably certain, as defined, to exercise an option to the lease or not to exercise an option to terminate the lease. Optional payments to purchase the underlying asset should be included if the lessee is reasonably certain it will exercise the purchase option. Most variable lease payments should be excluded except for those that depend on an index or a rate or are in substance fixed payments.

A lessee shall classify a lease as a finance lease if it meets any of five listed criteria:

1. The lease transfers ownership of the underlying asset to the lessee by the end of the lease term.

2. The lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise.

3. The lease term is for the major part of the remaining economic life of the underlying asset.

4. The present value of the sum of the lease payments and any residual value guaranteed by the lessee equals or exceeds substantially all of the fair value of the underlying asset.

5. The underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term.

For finance leases, a lessee shall recognize in the statement of comprehensive income interest on the lease liability separately from amortization of the right-of-use asset. Amortization of the right-of-use asset shall be on a straight-line basis, unless another basis is more representative of the pattern in which the lessee expects to consume the right-of-use asset’s future economic benefits. If the lease does not meet any of the five criteria, the lessee shall classify it as an operating lease and shall recognize a single lease cost on a straight-line basis over the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term.

The amendments in this update are to be applied using a modified retrospective approach, as defined, and are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018. Early application is permitted. LCNB management is currently evaluating the financial statement impact of adopting the new guidance.

ASU No. 2016-04, "Liabilities - Extinguishments of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value Products (a consensus of the FASB Emerging Issues Task Force)"

ASU No. 2016-04 was issued in March 2016 and determines that liabilities related to the sale of certain prepaid stored-value products (such as prepaid gift cards, prepaid telecommunication cards, and traveler's checks) are financial liabilities. The amendments in this update provide a narrow scope exception to the guidance in Subtopic 405-20 to require that breakage for these liabilities be accounted for consistent with breakage guidance in Topic 606, "Revenue from Contracts with Customers." The amendments in ASU No. 2016-04 are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. LCNB does not currently sell prepaid stored-value products and adoption of ASU No. 2016-04 is not expected to have an impact on LCNB's results of operations or financial position.

ASU No. 2016-05, "Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships (a consensus of the Emerging Issues Task Force)"

ASU No. 2016-05 was issued in March 2016 and applies to reporting entities for which there is a change in a counterparty to a derivative instrument that has been designated a hedging instrument under Topic 815, "Derivatives and Hedging." The amendments in this update clarify that a change in a counterparty to such a derivative instrument does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria under applicable guidance continue to be met. The amendments in ASU No. 2016-05 are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2016. LCNB does not currently have any investments in derivative instruments that have been designated as hedging instruments and adoption of ASU No. 2016-05 is not expected to have an impact on LCNB's results of operations or financial position.

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

(Continued)

Note 16 – Recent Accounting Pronouncements (continued)

ASU No. 2016-06 , "Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments (a consensus of the Emerging Issues Task Force)"

ASU No. 2016-06 was issued in March 2016 and clarifies what steps are required when assessing whether the economic characteristics and risks of call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to the economic characteristics and risks of their debt hosts, which is one of the criteria for bifurcating an embedded derivative. An entity performing the assessment under the amendments in this update is required to assess the

embedded call (put) options solely in accordance with the four-step decision sequence. The four-step decision sequence requires an entity to consider whether (1) the payoff is adjusted based on changes in an index, (2) the payoff is indexed to an underlying other than interest rates or credit risk, (3) the debt involves a substantial premium or discount, and (4) the call (put) option is contingently exercisable. The amendments in ASU No. 2016-06 are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2016. LCNB does not currently have any investments in debt instruments containing such call (put) options and adoption of ASU No. 2016-06 is not expected to have an impact on LCNB's results of operations or financial position.

ASU No. 2016-07, "Investments—Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting"

ASU No. 2016-07 was issued in March 2016 and affects all entities that have an investment that becomes qualified for the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence. The amendments in this update eliminate the requirement that, when an investment qualifies for use of the equity method, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. ASU No. 2016-07 requires that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The amendments also require that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The amendments in ASU No. 2016-07 are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Earlier application is permitted. Adoption of ASU No. 2016-07 is not expected to have a material impact on LCNB's results of operations or financial position.

ASU No. 2016-08, "Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)"

ASU No. 2016-08 was issued in March 2016 and affects the guidance in ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)," which is not yet effective. When another party is involved in providing goods or services to a customer, ASU No. 2014-09 requires an entity to determine whether the nature of its promise is to provide the specified good or service itself (that is, the entity is a principal) or to arrange for that good or service to be provided by the other party (that is, the entity is an agent). The amendments in ASU No. 2016-08 are intended to improve the operability and understandability of the implementation guidance in ASU No. 2014-09 on principal versus agent considerations by offering additional guidance to be considered in making the determination. The effective date and transition requirements for the amendments in this update are the same as the effective date and transition requirements for ASU No. 2014-09. Adoption of ASU No. 2016-08 is not expected to have a material impact on LCNB's results of operation or financial position.

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LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

(Continued)

Note 16 – Recent Accounting Pronouncements (continued)

ASU No. 2016-09, "Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting"

ASU No. 2016-09 was issued in March 2016 and affects all entities that issue share-based payment awards to their employees. The new guidance involves several aspects of the accounting for share-based payment transactions, including income tax

consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Under ASU No. 2016-09, any excess tax benefits or tax deficiencies should be recognized as income tax expense or benefit in the income statement. Excess tax benefits are to be classified as an operating activity in the statement of cash flows. In accruing compensation cost, an entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest, as required under current guidance, or account for forfeitures when they occur. For an award to qualify for equity classification, an entity cannot partially settle the award in excess of the employer's maximum statutory withholding requirements. Such cash paid by an employer when directly withholding shares for tax withholding purposes should be classified as a financing activity in the statement of cash flows. The amendments in ASU No. 2016-09 are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. Adoption of ASU No. 2016-07 is not expected to have a material impact on LCNB's results of operations or financial position.

ASU No. 2016-10, "Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing"

ASU No. 2016-10 was issued in April 2016 and affects the guidance in ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)," which is not yet effective. ASU No. 2016-10 clarifies the following two aspects of Topic 606:

1. evaluating whether promised goods and services are separately identifiable, and

2. determining whether an entity's promise to grant a license provides a customer with either a right to use the entity's intellectual property, which is satisfied at a point in time, or a right to access the entity's intellectual property, which is satisfied over time.

The effective date and transition requirements for the amendments in this update are the same as the effective date and transition requirements for ASU No. 2014-09. Adoption of ASU No. 2016-10 is not expected to have a material impact on LCNB's results of operation or financial position.

ASU No. 2016-12, "Revenue from Contracts with Customers (Topic 606): Narrow Scope Improvements and Practical Expedients"

ASU No. 2016-12 was issued in May 2016 and affects the guidance in ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)," which is not yet effective. The amendments clarify the assessment of the likelihood that revenue will be collected from a contract, the guidance for presenting sales taxes and similar taxes, the timing for measuring customer payments that are not in cash, and disclosure requirements by firms using the retrospective method of adoption. The amendments provide a practical expedient for recognizing revenue from contracts that have been modified prior to the transition period to the new standard. ASU No. 2016-12 also says a contract should be considered complete if all, or substantially all, of its revenue has been collected prior to making the transition to the new standard. The effective date and transition requirements for the amendments in this update are the same as the effective date and transition requirements for ASU No. 2014-09. Adoption of ASU No. 2016-12 is not expected to have a material impact on LCNB's results of operation or financial position.

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 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.

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LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

(Continued)

Note 16 – Recent Accounting Pronouncements (continued)

ASU No. 2016-13 also amends the accounting for credit losses on available-for-sale debt securities 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 available-for-sale debt securities 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 available-for-sale debt securities 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.

ASU No. 2016-13 will take effect for U.S. Securities and Exchange Commission (SEC) filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early application will be permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. LCNB management is currently evaluating the financial statement impact of adopting the new guidance.

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LCNB CORP. AND SUBSIDIARIES

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

Certain statements made in this document regarding LCNB’s financial condition, results of operations, plans, objectives, future performance and business, are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These forward-looking statements are identified by the fact they are not historical facts and include words such as “anticipate”, “could”, “may”, “feel”, “expect”, “believe”, “plan”, and similar expressions.

These forward-looking statements reflect management's current expectations based on all information available to management and its knowledge of LCNB’s business and operations. Additionally, LCNB’s financial condition, results of operations, plans, objectives, future performance and business are subject to risks and uncertainties that may cause actual results to differ materially. These factors include, but are not limited to:

1. the success, impact, and timing of the implementation of LCNB’s business strategies;

2. LCNB may incur increased charge-offs in the future;

3. LCNB may face competitive loss of customers;

4. changes in the interest rate environment may have results on LCNB’s operations materially different from those anticipated by LCNB’s market risk management functions;

5. changes in general economic conditions and increased competition could adversely affect LCNB’s operating results;

6. changes in other regulations and government policies affecting bank holding companies and their subsidiaries, including changes in monetary policies, could negatively impact LCNB’s operating results;

7. LCNB may experience difficulties growing loan and deposit balances;

8. the current economic environment poses significant challenges for us and could adversely affect our financial condition and results of operations;

9. deterioration in the financial condition of the U.S. banking system may impact the valuations of investments LCNB has made in the securities of other financial institutions resulting in either actual losses or other than temporary impairments on such investments; and

10. the effects of the Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and the regulations promulgated and to be promulgated thereunder, which may subject LCNB and its subsidiaries to a variety of new and more stringent legal and regulatory requirements which adversely affect their respective businesses. 

Forward-looking statements made herein reflect management's expectations as of the date such statements are made. Such information is provided to assist shareholders and potential investors in understanding current and anticipated financial operations of LCNB and is included pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. LCNB undertakes no obligation to update any forward-looking statement to reflect events or circumstances that arise after the date such statements are made. 

Critical Accounting Policies

Allowance for Loan Losses.  The allowance for loan losses is established through a provision for loan losses charged to expense.  Loans are charged against the allowance for loan losses when management believes that the collection of the principal is unlikely.  Subsequent recoveries, if any, are credited to the allowance.  The allowance is an amount that management believes will be adequate to absorb inherent losses in the loan portfolio, based on evaluations of the collectability of loans and prior loan loss experience.  The evaluations take into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, and current economic conditions that may affect the borrowers' ability to pay.  This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

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LCNB CORP. AND SUBSIDIARIES

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

The allowance consists of specific and general components.  The specific component relates to loans that are classified as doubtful, substandard, or special mention.  For such loans an allowance is established when the discounted cash flows or collateral value is lower than the carrying value of that loan.  The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors, which include trends in underperforming loans, trends in the volume and terms of loans, economic trends and conditions, concentrations of credit, trends in the quality of loans, and borrower financial statement exceptions.

Based on its evaluations, management believes that the allowance for loan losses will be adequate to absorb estimated losses inherent in the current loan portfolio.

Acquired Credit Impaired Loans. LCNB accounts for acquisitions using the acquisition method of accounting, which requires that assets acquired and liabilities assumed be measured at their fair values at the acquisition date. Acquired loans are reviewed to determine if there is evidence of deterioration in credit quality since inception and if it is probable that LCNB will be unable to collect all amounts due under the contractual loan agreements. The analysis includes expected prepayments and estimated cash flows including principal and interest payments at the date of acquisition. The amount in excess of the estimated future cash flows is not accreted into earnings. The amount in excess of the estimated future cash flows over the book value of the loan is accreted into interest income over the remaining life of the loan (accretable yield). LCNB records these loans on the acquisition date at their net realizable value. Thus, an allowance for estimated future losses is not established on the acquisition date. Subsequent to the date of acquisition, expected future cash flows on loans acquired are updated and any losses or reductions in estimated cash flows which arise subsequent to the date of acquisition are reflected as a charge through the provision for loan losses. An increase in the expected cash flows adjusts the level of the accretable yield recognized on a prospective basis over the remaining life of the loan. Due to the number, size, and complexity of loans within the acquired loan portfolio, there is always a possibility of inherent undetected losses.

Accounting for Intangibles.  LCNB’s intangible assets at June 30, 2016 are composed primarily of goodwill and core deposit intangibles related to acquisitions of other financial institutions. It also includes mortgage servicing rights recorded from sales of mortgage loans to the Federal Home Loan Mortgage Corporation and mortgage servicing rights acquired through the acquisition of Eaton National Bank & Trust Co.  Goodwill is not subject to amortization, but is reviewed annually for impairment.  Core deposit intangibles are being amortized on a straight line basis over their respective estimated weighted average lives.  Mortgage servicing rights are capitalized by allocating the total cost of loans between mortgage servicing rights and the loans based on their estimated fair values.  Capitalized mortgage servicing rights are amortized to loan servicing income in proportion to and over the period of estimated servicing income, subject to periodic review for impairment.

Results of Operations

Net income for the three and six months ended June 30, 2016 was $2,968,000 (total basic and diluted earnings per share of $0.30 and $0.29) and $5,932,000 (total basic and diluted earnings per share of $0.60 and $0.59), respectively.  This compares to net income of $3,123,000 (total basic and diluted earnings per share of $0.33 and $0.32) and $5,957,000 (total basic and diluted earnings per share of $0.63 and $0.62) for the same three and six-month periods in 2015. Results for the first six months of 2016 were significantly affected by the acquisition of BNB Bancorp, Inc. ("BNB") on April 30, 2015. In addition, LCNB sold impaired loans with a carrying value of approximately $4.5 million during the second quarter of 2015, resulting in a net gain from sale of loans of $178,000.

Although net income for the six months ended June 30, 2016 is less than the comparable period in 2015, the decrease is primarily due to two one-time expenses. The first of which is a $251,000 penalty incurred during the first quarter for the early payoff of an FHLB borrowing bearing an interest rate of 5.25%, which will significantly decrease future interest expense. The second is a $346,000 write-down of commercial foreclosed property to its estimated liquidation value as LCNB prepares to auction the property.

Net interest income for the three and six months ended June 30, 2016 decreased $475,000 and $31,000, respectively, from the comparable periods in 2015, due primarily to the absence during 2016 of non-accrual interest recognized as a result of the 2015 impaired loan sale mentioned above, partially offset by organic growth in LCNB's loan portfolio.

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LCNB CORP. AND SUBSIDIARIES

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

The provision for loan losses for the three and six months ended June 30, 2016 was $281,000 and $260,000, respectively, less than the comparable periods in 2015. Net loan charge-offs for for the six months ended June 30, 2016 and 2015 totaled $242,000 and $988,000, respectively.  The 2015 balance includes charge-offs recognized as a result of the impaired loan sale mentioned above. Non-accrual loans and loans past due 90 days or more and still accruing interest increased $784,000, from $2,282,000 or 0.30% of total loans at December 31, 2015, to $3,066,000 or 0.38% of total loans at June 30, 2016, primarily due to two loans to the same borrower totaling $1,307,000 that were newly classified as non-accrual during the first quarter of 2016. Other real estate owned (which includes property acquired through foreclosure or deed-in-lieu of foreclosure) decreased from $846,000 at December 31, 2015 to $682,000 at June 30, 2016 due to a write-down totaling $346,000 recognized on commercial property, partially offset by an addition to this category.

Non-interest income for the three months ended June 30, 2016 was $81,000 less than the comparable period in 2015 primarily due to a decrease in gains from sales of loans. The decrease reflects the absence of gains recognized as a result of the impaired loan sale in 2015. Non-interest income for the six months ended June 30, 2016 was $255,000 greater than the comparable period in 2015 primarily due to gains from sales of investment securities, partially offset by the decrease in gains from sales of loans. Gains from sales of investment securities increased because of a greater volume of sales.

Non-interest expense for the three and six months ended June 30, 2016 was $42,000 and $685,000, respectively, greater than the comparable periods in 2015. The increase for the second quarter was primarily due to increases in salaries and employee benefits and the write-down of other real estate owned property mentioned above, largely offset by the absence of merger expenses during the second quarter of 2016. The six-month period increased for substantially the same reasons as the quarter plus a $251,000 penalty for early payoff of a $5 million Federal Home Loan Bank ("FHLB") advance recognized during the first quarter of 2016. The FHLB advance had an interest rate of 5.25% and was paid off to reduce interest expense on long-term debt. Salaries and employee benefits increased primarily due to salary and wage increases, employees retained from the BNB acquisition, and an increase in the number of employees in addition to the acquisition.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Net Interest Income

Three Months Ended June 30, 2016 vs. 2015

LCNB's primary source of earnings is net interest income, which is the difference between earnings from loans and other investments and interest paid on deposits and other liabilities.  The following table presents, for the three months ended June 30, 2016 and 2015, average balances for interest-earning assets and interest-bearing liabilities, the income or expense related to each item, and the resulting average yields earned or rates paid.

	Three Months Ended June 30,
	2016						2015
	Average Outstanding Balance			Interest Earned/ Paid	Average Yield/ Rate		Average Outstanding Balance			Interest Earned/ Paid	Average Yield/ Rate
					(Dollars in thousands)
Loans (1)	$	784,324		8,892	4.56	%	$	737,021		9,492	5.17	%
Federal funds sold	—			—	—	%	1,813			1	0.22	%
Interest-bearing demand deposits	13,132			17	0.52	%	14,106			10	0.28	%
Federal Reserve Bank stock	2,732			82	12.07	%	2,439			74	12.17	%
Federal Home Loan Bank stock	3,638			36	3.98	%	3,638			36	3.97	%
Investment securities:
Taxable	251,569			1,187	1.90	%	242,397			1,033	1.71	%
Non-taxable (2)	138,191			1,207	3.51	%	112,276			1,064	3.80	%
Total earnings assets	1,193,586			11,421	3.85	%	1,113,690			11,710	4.22	%
Non-earning assets	112,590						110,113
Allowance for loan losses	(3,103		)				(2,865		)
Total assets	$	1,303,073					$	1,220,938
Savings deposits	$	658,090		174	0.11	%	$	608,616		134	0.09	%
IRA and time certificates	217,390			696	1.29	%	222,524			537	0.97	%
Short-term borrowings	14,355			8	0.22	%	12,803			4	0.13	%
Long-term debt	747			5	2.69	%	6,108			73	4.79	%
Total interest-bearing liabilities	890,582			883	0.40	%	850,051			748	0.35	%
Demand deposits	257,923						226,678
Other liabilities	10,383						8,206
Capital	144,185						136,003
Total liabilities and capital	$	1,303,073					$	1,220,938
Net interest rate spread (3)					3.45	%					3.87	%
Net interest income and net interest margin on a taxable-equivalent basis (4)				10,538	3.55	%				10,962	3.95	%
Ratio of interest-earning assets to interest-bearing liabilities	134.02		%				131.01		%

(1)Includes nonaccrual loans, if any.

(2)Income from tax-exempt securities is included in interest income on a taxable-equivalent basis.  Interest income has

been divided by a factor comprised of the complement of the incremental tax rate.

(3)The net interest spread is the difference between the average rate on total interest-earning assets and interest-bearing

liabilities.

(4)The net interest margin is the taxable-equivalent net interest income divided by average interest-earning assets.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

The following table presents the changes in taxable-equivalent basis interest income and expense for each major category of interest-earning assets and interest-bearing liabilities and the amount of change attributable to volume and rate changes for the three months ended June 30, 2016 as compared to the same period in 2015.  Changes not solely attributable to rate or volume have been allocated to volume and rate changes in proportion to the relationship of absolute dollar amounts of the changes in each.

	Three Months Ended June 30, 2016 vs. 2015 Increase (decrease) due to:
	Volume			Rate		Total
	(In thousands)
Interest-earning Assets:
Loans	$	584		(1,184	)	(600	)
Federal funds sold	(1		)	—		(1	)
Interest-bearing demand deposits	(1		)	8		7
Federal Reserve Bank stock	9			(1	)	8
Federal Home Loan Bank stock	—			—		—
Investment securities:
Taxable	40			114		154
Non-taxable	231			(88	)	143
Total interest income	862			(1,151	)	(289	)
Interest-bearing Liabilities:
Savings deposits	12			28		40
IRA and time certificates	(13		)	172		159
Short-term borrowings	1			3		4
Long-term debt	(45		)	(23	)	(68	)
Total interest expense	(45		)	180		135
Net interest income	$	907		(1,331	)	(424	)

Net interest income on a fully tax-equivalent basis for the three months ended June 30, 2016 totaled $10,538,000, a decrease of $424,000 over the comparable period in 2015.  Total interest income decreased $289,000 and total interest expense increased $135,000.

The decrease in total interest income was due to a 37 basis point (a basis point equals 0.01%) decrease in the average rate earned on earning assets, partially offset by a $79.9 million increase in average total earning assets. Included in the average rate for 2015 was non-accrual interest recognized as a result of the impaired loan sale. The increase in average total earning assets was due to a $47.3 million increase in average loans and a $35.1 million increase in average total investment securities. The increase in average loans was partially due to the acquisition of BNB on April 30, 2015 and partially due to organic loan growth.

The increase in total interest expense was due primarily to a 5 basis point increase in the average rate paid on average total interest-bearing liabilities, partially offset by a $5.4 million decrease in average long-term debt. The decrease in the average long-term debt was due to the early payment in full during January 2016 of a $5.0 million FHLB advance bearing an interest rate of 5.25%. The advance was paid off to reduce interest expense.

44

LCNB CORP. AND SUBSIDIARIES

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Six months ended June 30, 2016 vs. 2015

The following table presents, for the six months ended June 30, 2016 and 2015, average balances for interest-earning assets and interest-bearing liabilities, the income or expense related to each item, and the resulting average yields earned or rates paid.

	Six Months Ended June 30,
	2016						2015
	Average Outstanding Balance			Interest Earned/ Paid	Average Yield/ Rate		Average Outstanding Balance			Interest Earned/ Paid	Average Yield/ Rate
					(Dollars in thousands)
Loans (1)	$	778,264		17,519	4.53	%	$	718,592		18,032	5.06	%
Federal funds sold	—			—	—	%	911			1	0.22	%
Interest-bearing demand deposits	11,494			27	0.47	%	11,485			14	0.25	%
Federal Reserve Bank stock	2,732			82	6.04	%	2,393			74	6.24	%
Federal Home Loan Bank stock	3,638			73	4.04	%	3,638			73	4.05	%
Investment securities:
Taxable	252,625			2,376	1.89	%	224,885			1,889	1.69	%
Non-taxable (2)	133,894			2,359	3.54	%	106,230			2,053	3.90	%
Total earnings assets	1,182,647			22,436	3.82	%	1,068,134			22,136	4.18	%
Non-earning assets	111,012						108,041
Allowance for loan losses	(3,116		)				(2,868		)
Total assets	$	1,290,543					$	1,173,307
Savings deposits	$	649,930		332	0.10	%	$	580,076		254	0.09	%
IRA and time certificates	217,432			1,361	1.26	%	216,779			1,099	1.02	%
Short-term borrowings	17,532			22	0.25	%	13,310			8	0.12	%
Long-term debt	1,002			17	3.41	%	6,352			149	4.73	%
Total interest-bearing liabilities	885,896			1,732	0.39	%	816,517			1,510	0.37	%
Demand deposits	251,505						217,127
Other liabilities	9,826						7,834
Capital	143,316						131,829
Total liabilities and capital	$	1,290,543					$	1,173,307
Net interest rate spread (3)					3.43	%					3.81	%
Net interest income and net interest margin on a taxable-equivalent basis (4)				20,704	3.52	%				20,626	3.89	%
Ratio of interest-earning assets to interest-bearing liabilities	133.50		%				130.82		%

(1)Includes nonaccrual loans, if any.

(2)Income from tax-exempt securities is included in interest income on a taxable-equivalent basis.  Interest income has

been divided by a factor comprised of the complement of the incremental tax.

(3)The net interest spread is the difference between the average rate on total interest-earning assets and interest-bearing

liabilities.

(4)The net interest margin is the taxable-equivalent net interest income divided by average interest-earning assets.

45

LCNB CORP. AND SUBSIDIARIES

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

The following table presents the changes in taxable-equivalent basis interest income and expense for each major category of interest-earning assets and interest-bearing liabilities and the amount of change attributable to volume and rate changes for the six months ended June 30, 2016 as compared to the same period in 2015.  Changes not solely attributable to rate or volume have been allocated to volume and rate changes in proportion to the relationship of absolute dollar amounts of the changes in each.

	Six Months Ended June 30, 2016 vs. 2015 Increase (decrease) due to:
	Volume			Rate		Total
	(In thousands)
Interest-earning Assets:
Loans	$	1,429		(1,942	)	(513	)
Federal funds sold	(1		)	—		(1	)
Interest-bearing demand deposits	—			13		13
Federal Reserve Bank stock	10			(2	)	8
Federal Home Loan Bank stock	—			—		—
Investment securities:
Taxable	247			240		487
Non-taxable	499			(193	)	306
Total interest income	2,184			(1,884	)	300
Interest-bearing Liabilities:
Savings deposits	33			45		78
IRA and time certificates	3			259		262
Short-term borrowings	3			11		14
Long-term debt	(99		)	(33	)	(132	)
Total interest expense	(60		)	282		222
Net interest income	$	2,244		(2,166	)	78

Net interest income on a fully tax-equivalent basis for the six months ended June 30, 2016 totaled $20,704,000, an increase of $78,000 over the comparable period in 2015.  Total interest income increased $300,000, partially offset by an increase in total interest expense of $222,000.

The increase in total interest income was due primarily to a $114.5 million increase in average total earning assets, partially offset by a 36 basis point decrease in the average rate earned on earning assets.  Included in the average rate for 2015 was non-accrual interest recognized as a result of the impaired loan sale. The increase in average total earning assets was due to a $59.7 million increase in average loans and to a $55.4 million increase in average total investment securities. The increase in average loans was partially due to the acquisition of BNB and partially due to organic loan growth.

The increase in total interest expense was primarily due to a 24 basis point increase in the average rate paid on IRA and time certificates, partially offset by a combination of a 132 basis point decrease in the average rate paid on long-term debt and a $5.4 million decrease in average long-term debt. Average long-term debt and the rate associated with that debt decreased due to the payment in full during January 2016 of a $5.0 million advance from the FHLB of Cincinnati that had an interest rate of 5.25%.

46

LCNB CORP. AND SUBSIDIARIES

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Provision and Allowance For Loan Losses

The total provision for loan losses is determined based upon management's evaluation as to the amount needed to maintain the allowance for loan losses at a level considered appropriate in relation to the risk of losses inherent in the portfolio.  In addition to historic charge-off percentages, factors taken into consideration to determine the adequacy of the allowance for loan losses include the nature, volume, and consistency of the loan portfolio, overall portfolio quality, a review of specific problem loans, and current economic conditions that may affect borrowers' ability to pay.  The provision for loan losses for the three and six months ended June 30, 2016 were $396,000 and $486,000, respectively, as compared to $677,000 and $746,000 for the same periods in 2015. Net charge-offs for the three and six months ended June 30, 2016 were $173,000 and $242,000, respectively, as compared to $635,000 and $988,000 for the same periods in 2015. Net charge-offs and the provision for loan losses had elevated balances during the second quarter of 2015 due to the sale of impaired loans during that quarter.

Non-Interest Income

Three Months Ended June 30, 2016vs.2015

Total non-interest income for the second quarter of 2016 was $81,000 less than for the second quarter of 2015 primarily due to a $158,000 decrease in gains from sales of loans reflecting the absence during 2016 of gains recognized on some of the impaired loans sold during the second quarter of 2015. Partially offsetting this decrease was a $58,000 increase in net gains from sales of investment securities and a $36,000 increase in bank owned life insurance income due to additional policies purchased during the first quarter of 2016.

Six Months Ended June 30, 2016vs.2015

Total non-interest income for the first six months of 2016 was $255,000 greater than for the first six months of 2015 primarily due to a $318,000 increase in net gains from sales of securities and a $95,000 increase in service charges and fees on deposit accoounts, partially offset by a $152,000 decrease in gains from sales of loans for the same reason mentioned above. Service charges and fees on deposit accounts increased primarily due to a greater number of cards outstanding, on average, during the first half of 2016 because of the merger with BNB on April 30, 2015.

Non-Interest Expense

Three Months Ended June 30, 2016 vs. 2015

Non-interest expense for the second quarter of 2016 was $42,000 greater than for the second quarter of 2015 primarily due to a $151,000 increase in salaries and employee benefits, a $336,000 increase in other real estate owned expense, and a $99,000 increase in other non-interest expense. Partially offsetting these increases was the absence in 2016 of $522,000 of merger-related expenses recognized during the second quarter of 2015. Salaries and employee benefits increased primarily due to salary and wage increases, employees retained from the BNB acquisition, and an increase in the number of employees outside of the acquisition. The increase in other real estate owned expense was primarily due to the $346,000 write-down on commercial other real estate owned mentioned earlier. The increase in other non-interest expense was due to smaller increases in various other accounts.

Six Months Ended June 30, 2016 vs. 2015

Non-interest expense for the first six months of 2016 was $685,000 greater than for the first six months of 2015 primarily due to a $424,000 increase in salaries and employee benefits, a $330,000 increase in other real estate owned expense, and a $522,000 increase in other non-interest expense. Salaries and employee benefits and other real estate owned expense increased for substantially the same reasons mentioned above. The increase in other non-interest expense included a $251,000 penalty incurred on the early payoff during the first quarter of 2016 of the FHLB advance mentioned earlier.

Income Taxes

LCNB's effective tax rates for the six months ended June 30, 2016 and 2015 were 26.2% and 27.7%, respectively.  The difference between the statutory rate of 34.0% and the effective tax rate is primarily due to tax-exempt interest income from municipal securities and tax-exempt earnings from bank owned life insurance.

Financial Condition

Total investment securities at June 30, 2016 were $7.6 million less than at December 31, 2015. During the first half of 2016, LCNB purchased $59.1 million in new securities. The purchases were more than offset by the sale of $35.9 million of investment securities and maturities and calls of an additional $36.4 million of investment securities.

47

LCNB CORP. AND SUBSIDIARIES

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Net loans at June 30, 2016 were $29.3 million greater than at December 31, 2015. Commercial real estate loans increased by $36.0 million, partially offset by a $6.5 million decrease in residential real estate loans.

Net premises and equipment at June 30, 2016 was $2.9 million greater than at December 31, 2015 primarily due to land and construction costs paid to date for the new Operations Center.

Bank owned life insurance at June 30, 2016 was $4.4 million greater than at December 31, 2015 primarily due to the purchase of $4.0 million of new policies during the first quarter of 2016.

Total deposits at June 30, 2016 were $37.5 million greater than at December 31, 2015. Included in this increase was a $31.7 million increase in public fund deposits by local government entities. Public fund deposits can be relatively volatile due to seasonal tax collections and the financial needs of the local entities.

Long-term debt at June 30, 2016 was $5.2 million less than at December 31, 2015 primarily due to the early payment in full of a $5.0 million advance from the FHLB during January 2016. The advance had an interest rate of 5.25% and its payment will reduce future interest expense.

Shareholders' equity at June 30, 2016 was $5.6 million greater than at December 31, 2015, primarily due to earnings retained and an increase in accumulated other comprehensive income, net of taxes, resulting from market driven increases in the market value of investments securities. Partially offsetting these increases was a $1.3 million decrease in common shares primarily resulting from the repurchase and cancellation of all outstanding warrants.

Regulatory Capital

The Bank and LCNB are required by regulators to meet certain minimum levels of capital adequacy. These are expressed in the form of certain ratios. Capital is separated into Tier 1 capital (essentially shareholders' equity less goodwill and other intangibles) and Tier 2 capital (essentially the allowance for loan losses limited to 1.25% of risk-weighted assets). Common Equity Tier 1 Capital is the sum of common stock, related surplus, and retained earnings net of treasury stock, accumulated other comprehensive income, and other adjustments. These three ratios, which are based on the degree of credit risk in LCNB's assets, provide for weighting assets based on assigned risk factors and include off-balance sheet items such as loan commitments and standby letters of credit.  The leverage ratio supplements the risk-based capital guidelines.

For various regulatory purposes, financial institutions are classified into categories based upon capital adequacy:

	Minimum Requirement		To Be Considered Well-Capitalized
Ratio of Common Equity Tier 1 Capital to risk-weighted assets	4.5	%	6.5	%
Ratio of Tier 1 Capital to risk-weighted assets	6.0	%	8.0	%
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)	4.0	%	5.0	%

A new rule requiring a Capital Conservation Buffer began phase-in on January 1, 2016. Under the fully-implemented rule, a financial institution will need to maintain a Capital Conservation Buffer composed of Common Equity Tier 1 Capital of at least 2.5% above its minimum risk-weighted capital requirements to avoid limitations on its ability to make capital distributions, including dividend payments to shareholders and certain discretionary bonus payments to executive officers. A financial institution with a buffer below 2.5% will be subject to increasingly stringent limitations on capital distributions as the buffer approaches zero.

As of the most recent notification from their regulators, the Bank and LCNB 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 or LCNB's category.

48

LCNB CORP. AND SUBSIDIARIES

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

A summary of the regulatory capital and capital ratios of LCNB follows (dollars in thousands):

	June 30, 2016			December 31, 2015
Regulatory Capital:
Shareholders' equity	$	145,710		140,108
Goodwill and other intangibles	(32,903		)	(32,146	)
Accumulated other comprehensive (income) loss	(4,389		)	(256	)
Tier 1 risk-based capital	108,418			107,706
Eligible allowance for loan losses	3,373			3,129
Total risk-based capital	$	111,791		110,835
Capital ratios:
Common Equity Tier 1 Capital to risk-weighted assets	12.89		%	13.46	%
Tier 1 Capital to risk-weighted assets	12.89		%	13.46	%
Total Capital to risk-weighted assets	13.29		%	13.85	%
Leverage	8.56		%	8.62	%

Liquidity

LCNB depends on dividends from the Bank for the majority of its liquid assets, including the cash needed to pay dividends to its shareholders.  National banking law limits the amount of dividends the Bank may pay to the sum of retained net income for the current year plus retained net income for the previous two years.  Prior approval from the Office of the Comptroller of the Currency, the Bank's primary regulator, is necessary for the Bank to pay dividends in excess of this amount.  In addition, dividend payments may not reduce capital levels below minimum regulatory guidelines.  Management believes the Bank will be able to pay anticipated dividends to LCNB Corp. without needing to request approval.  The Bank is not aware of any reasons why it would not receive such approval.

Liquidity is the ability to have funds available at all times to meet the commitments of LCNB.  Asset liquidity is provided by cash and assets which are readily marketable or pledgeable or which will mature in the near future. Liquid assets include cash and cash equivalents and securities available for sale.  At June 30, 2016, LCNB's liquid assets amounted to $372.5 million or 28.4% of total assets.  This compares to liquid assets totaling $393.0 million, or 30.7% of total assets, at December 31, 2015.

Liquidity is also provided by access to core funding sources, primarily core depositors in LCNB's market area.  Approximately 81.8% of total deposits at June 30, 2016 were "core" deposits, compared to 84.3% of deposits at December 31, 2015. Core deposits, for this purpose, are defined as total deposits less public funds and certificates of deposit greater than $100,000. The percentage of core deposits to total deposits decreased because of the growth in public fund deposits discussed above in relation to total growth in deposits.

Secondary sources of liquidity include LCNB's ability to sell loan participations, borrow funds from the FHLB, purchase federal funds, issue repurchase agreements, or use a line of credit established with another bank.

Management closely monitors the level of liquid assets available to meet ongoing funding needs.  It is management's intent to maintain adequate liquidity so that sufficient funds are readily available at a reasonable cost.  LCNB experienced no liquidity or operational problems as a result of the current liquidity levels.

49

LCNB CORP. AND SUBSIDIARIES

Item 3. Quantitative and Qualitative Disclosures about Market Risks

Market risk for LCNB is primarily interest rate risk.  LCNB attempts to mitigate this risk through asset/liability management strategies designed to decrease the vulnerability of its earnings to material and prolonged changes in interest rates.  LCNB does not use derivatives such as interest rate swaps, caps, or floors to hedge this risk.  LCNB has not entered into any market risk instruments for trading purposes.

The Bank's Asset and Liability Management Committee ("ALCO") primarily uses a combination of Interest Rate Sensitivity Analysis ("IRSA") and Economic Value of Equity ("EVE") analysis for measuring and managing interest rate risk.  IRSA is used to estimate the effect on net interest income ("NII") during a one-year period of instantaneous and sustained movements in interest rates, also called interest rate shocks, of 100, 200, and 300 basis points.  Management considers the results of any significant downward scenarios to not be meaningful in the current interest rate environment.  The base projection uses a current interest rate scenario.  As shown below, the June 30, 2016 IRSA indicates that an increase in interest rates will have a positive effect on net interest income ("NII"). The changes in NII for all rate assumptions are within LCNB's acceptable ranges.

Rate Shock Scenario in Basis Points	Amount		$ Change in NII	% Change in NII
	(Dollars in thousands)
Up 300	$	39,805	1,060	2.74	%
Up 200	39,397		652	1.68	%
Up 100	39,059		314	0.81	%
Base	38,745		—	—	%

IRSA shows the effect on NII during a one-year period only.  A more long-range model is the EVE analysis, which shows the estimated present value of future cash inflows from interest-earning assets less the present value of future cash outflows for interest-bearing liabilities for the same rate shocks.  As shown below, the June 30, 2016 EVE analysis indicates that an increase in interest rates will have a negative effect on the EVE.  The changes in EVE for all rate assumptions are within LCNB's acceptable ranges.

Rate Shock Scenario in Basis Points	Amount		$ Change in EVE		% Change in EVE
	(Dollars in thousands)
Up 300	$	147,397	(4,948	)	(3.25	)%
Up 200	147,825		(4,520	)	(2.97	)%
Up 100	149,762		(2,583	)	(1.70	)%
Base	152,345		—		—	%

The IRSA and EVE simulations discussed above are not projections of future income or equity and should not be relied on as being indicative of future operating results.  Assumptions used, including the nature and timing of interest rate levels, yield curve shape, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, and reinvestment or replacement of asset and liability cash flows, are inherently uncertain and, as a result, the models cannot precisely measure future net interest income or equity.  Furthermore, the models do not reflect actions that borrowers, depositors, and management may take in response to changing economic conditions and interest rate levels.

50

LCNB CORP. AND SUBSIDIARIES

Item 4. Controls and Procedures

a)  Disclosure controls and procedures.  The Chief Executive Officer and the Chief Financial Officer have carried out an evaluation of the effectiveness of LCNB's disclosure controls and procedures that ensure that information relating to LCNB required to be disclosed by LCNB in the reports that it files or submits under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that such information is accumulated and communicated to LCNB's management, including its principal executive officer and principal financial officer, as appropriate, in order to allow timely decisions to be made regarding required disclosures.  Based upon this evaluation, these officers have concluded that, as of June 30, 2016, LCNB's disclosure controls and procedures were effective.

b)  Changes in internal control over financial reporting.  During the period covered by this report, there were no changes in LCNB's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, LCNB's internal control over financial reporting.

51

PART II.  OTHER INFORMATION

LCNB CORP. AND SUBSIDIARIES

Item 1. Legal Proceedings

None

Item 1A. Risk Factors

No material changes

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the period of this report, LCNB did not sell any of its securities that were not registered under the Securities Act.

During the period covered by this report, LCNB did not purchase any shares of its equity securities.

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

None

52

LCNB CORP. AND SUBSIDIARIES

Item 6. Exhibits

Exhibit No.	Exhibit Description
2.1	Agreement and Plan of Merger dated as of December 29, 2014 by and between LCNB Corp. and BNB Bancorp, Inc. - incorporated by reference to the Registrant's Current Report on Form 8-K filed on January 2, 2015, Exhibit 2.1.
3.1	Amended and Restated Articles of Incorporation of LCNB Corp., as amended – incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2010, Exhibit 3.1.
3.2	Code of Regulations of LCNB Corp. – incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2005, Exhibit 3(ii).
10.1	LCNB Corp. Ownership Incentive Plan – incorporated by reference to Registrant's Form DEF 14A Proxy Statement pursuant to Section 14(a), dated March 15, 2002, Exhibit A (000-26121).
10.2	LCNB Corp. 2015 Ownership Incentive Plan - incorporated by reference to Registrant's Form DEF 14A Proxy Statement pursuant to Section 14(a), dated March 13, 2015, Exhibit A (001-35292)
10.3	Form of Option Grant Agreement under the LCNB Corp. Ownership Incentive Plan – incorporated by reference to the Registrant's Form 10-K for the fiscal year ended December 31, 2005, Exhibit 10.2.
10.4	Nonqualified Executive Retirement Plan – incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 2009, Exhibit 10.4.
10.5	Form of Restricted Share Grant Agreement under the LCNB Corp. 2015 Ownership Incentive Plan - incorporated by reference to the Registrant's Form 10-K for the fiscal year ended December 31, 2015, Exhibit 10.7
31.1	Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification of Chief Executive Officer and Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002.
101	The following financial information from LCNB Corp.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 is formatted in Extensible Business Reporting Language:  (i) the Consolidated Condensed Balance Sheets, (ii) the Consolidated Condensed Statements of Income, (iii) the Consolidated Condensed Statements of Comprehensive Income, (iv) the Consolidated Condensed Statements of Shareholders' Equity, (v) the Consolidated Condensed Statements of Cash Flows, and (vi) the Notes to Consolidated Condensed Financial Statements.

53

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	LCNB Corp.
August 5, 2016	/s/ Steve P. Foster
	Steve P. Foster
	Chief Executive Officer and President
August 5, 2016	/s/ Robert C. Haines, II
	Robert C. Haines, II
	Executive Vice President and Chief Financial Officer

54

EX-31.1

Exhibit 31.1

CERTIFICATIONS

In connection with the Quarterly Report of LCNB Corp. on Form 10-Q for the period ending June 30, 2016, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Steve P. Foster, Chief Executive Officer and President of LCNB Corp., certify that:

1) I have reviewed this quarterly report on Form 10-Q of LCNB Corp.;

2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

4) The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

/s/ Steve P. Foster

Steve P. Foster

Chief Executive Officer and President

August 5, 2016

EX-31.2

Exhibit 31.2

CERTIFICATIONS

In connection with the Quarterly Report of LCNB Corp. on Form 10-Q for the period ending June 30, 2016, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Robert C. Haines, II, Executive Vice President and Chief Financial Officer of LCNB Corp., certify that:

1) I have reviewed this quarterly report on Form 10-Q of LCNB Corp.;

2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

4) The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

/s/ Robert C. Haines, II

Robert C. Haines, II

Executive Vice President and

Chief Financial Officer

August 5, 2016

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of LCNB Corp. (the "Company") on Form 10-Q for the period ending June 30, 2016, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), we, Steve P. Foster, Chief Executive Officer and President, and Robert C. Haines, II, Executive Vice President and Chief Financial Officer, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of our knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Steve P. Foster	/s/ Robert C. Haines, II
Steve P. Foster Chief Executive Officer and President	Robert C. Haines, II Executive Vice President and Chief Financial Officer

Date:   August 5, 2016

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Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2016	Aug. 04, 2016
Document and Entity Information [Abstract]
Entity Registrant Name	LCNB CORP
Entity Central Index Key	0001074902
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Document Type	10-Q
Document Period End Date	Jun. 30, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q2
Amendment Flag	false
Entity Common Stock, Shares Outstanding		9,978,975

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CONSOLIDATED CONDENSED BALANCE SHEETS - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
ASSETS:
Cash and due from banks	$ 17,254	$ 14,155
Interest-bearing demand deposits	1,753	832
Total cash and cash equivalents	19,007	14,987
Investment securities:
Available-for-sale, at fair value	353,528	377,978
Held-to-maturity, at cost	39,447	22,633
Federal Reserve Bank stock, at cost	2,732	2,732
Federal Home Loan Bank stock, at cost	3,638	3,638
Loans, net	797,092	767,809
Premises and equipment, net	24,985	22,100
Goodwill	30,183	30,183
Core deposit and other intangibles	4,986	5,396
Bank owned life insurance	26,921	22,561
Other assets	10,116	10,514
TOTAL ASSETS	1,312,635	1,280,531
Deposits:
Noninterest-bearing	252,498	250,306
Interest-bearing	872,200	836,854
Total deposits	1,124,698	1,087,160
Short-term borrowings	30,541	37,387
Long-term debt	726	5,947
Accrued interest and other liabilities	10,960	9,929
TOTAL LIABILITIES	1,166,925	1,140,423
COMMITMENTS AND CONTINGENT LIABILITIES	0	0
SHAREHOLDERS' EQUITY:
Preferred shares – no par value, authorized 1,000,000 shares, none outstanding	0	0
Common shares – no par value; authorized 19,000,000 and 12,000,000 shares at June 30, 2016 and December 31, 2015, respectively; issued 10,690,889 and 10,679,174 shares at June 30, 2016 and December 31, 2015, respectively	75,602	76,908
Retained earnings	77,384	74,629
Treasury shares at cost, 753,627 shares at June 30, 2016 and December 31, 2015	(11,665)	(11,665)
Accumulated other comprehensive income, net of taxes	4,389	236
TOTAL SHAREHOLDERS' EQUITY	145,710	140,108
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 1,312,635	$ 1,280,531

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CONSOLIDATED CONDENSED BALANCE SHEETS (Parenthetical) - $ / shares	Jun. 30, 2016	Dec. 31, 2015
SHAREHOLDERS' EQUITY:
Preferred shares, no par value (in dollars per share)
Preferred shares, shares authorized (in shares)	1,000,000	1,000,000
Preferred shares, shares outstanding (in shares)	0	0
Common shares, no par value (in dollars per share)
Common shares, shares authorized (in shares)	19,000,000	12,000,000
Common shares, shares issued (in shares)	10,690,889	10,679,174
Treasury shares (in shares)	753,627	753,627

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CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
INTEREST INCOME:
Interest and fees on loans	$ 8,892	$ 9,492	$ 17,519	$ 18,032
Interest on investment securities:
Taxable	1,187	1,033	2,376	1,889
Non-taxable	794	702	1,552	1,355
Other investments	135	121	182	162
TOTAL INTEREST INCOME	11,008	11,348	21,629	21,438
INTEREST EXPENSE:
Interest on deposits	870	671	1,693	1,353
Interest on short-term borrowings	8	4	22	8
Interest on long-term debt	5	73	17	149
TOTAL INTEREST EXPENSE	883	748	1,732	1,510
NET INTEREST INCOME	10,125	10,600	19,897	19,928
PROVISION FOR LOAN LOSSES	396	677	486	746
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	9,729	9,923	19,411	19,182
NON-INTEREST INCOME:
Trust income	837	852	1,600	1,652
Service charges and fees on deposit accounts	1,243	1,234	2,436	2,341
Net gain on sales of securities	279	221	650	332
Bank owned life insurance income	191	155	360	314
Gains from sales of loans	61	219	102	254
Other operating income	139	150	244	244
TOTAL NON-INTEREST INCOME	2,750	2,831	5,392	5,137
NON-INTEREST EXPENSE:
Salaries and employee benefits	4,532	4,381	9,095	8,671
Equipment expenses	239	302	488	590
Occupancy expense, net	588	584	1,157	1,179
State franchise tax	276	250	557	502
Marketing	201	220	368	383
Amortization of intangibles	188	175	375	321
FDIC insurance premiums	162	145	327	296
Other real estate owned	356	20	385	55
Merger-related expenses	0	522	0	592
Other non-interest expense	1,926	1,827	4,008	3,486
TOTAL NON-INTEREST EXPENSE	8,468	8,426	16,760	16,075
INCOME BEFORE INCOME TAXES	4,011	4,328	8,043	8,244
PROVISION FOR INCOME TAXES	1,043	1,205	2,111	2,287
NET INCOME	$ 2,968	$ 3,123	$ 5,932	$ 5,957
Dividends declared per common share (usd per share)	$ 0.16	$ 0.16	$ 0.32	$ 0.32
Earnings per common share:
Basic (usd per share)	0.30	0.33	0.60	0.63
Diluted (usd per share)	$ 0.29	$ 0.32	$ 0.59	$ 0.62
Weighted average common shares outstanding:
Basic (in shares)	9,922,024	9,694,732	9,919,070	9,504,739
Diluted (in shares)	9,943,797	9,804,728	9,971,900	9,609,050

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CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Statement of Comprehensive Income [Abstract]
Net income	$ 2,968	$ 3,123	$ 5,932	$ 5,957
Other comprehensive income (loss):
Net unrealized gain (loss) on available-for-sale securities (net of taxes of $742 and $838 for the three months ended June 30, 2016 and 2015, respectively and $2,332 and $75 for the six months ended June 30, 2016 and 2015, respectively.)	1,439	(1,627)	4,526	(147)
Reclassification adjustment for net realized (gain) loss on sale of available-for-sale securities included in net income (net of taxes of $95 and $75 for the three months ended June 30, 2016 and 2015, respectively and $221 and $113 for the six months ended June 30, 2016 and 2015, respectively)	(184)	(146)	(429)	(219)
Change in nonqualified pension plan unrecognized net loss and unrecognized prior service cost (net of taxes of $14 and $15 for the three months ended June 30, 2016 and 2015, respectively and $28 and $29 for the six months ended June 30, 2016 and 2015, respectively)	28	28	56	56
TOTAL COMPREHENSIVE INCOME	$ 4,251	$ 1,378	$ 10,085	$ 5,647

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CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Other comprehensive income:
Net unrealized gain (loss) on available-for-sale securities, tax expense (benefit)	$ 742	$ (838)	$ 2,332	$ (75)
Net realized (gain) loss on sale of available-for-sale securities included in net income, tax (expense) benefit	(95)	(75)	(221)	(113)
Change in nonqualified pension plan unrecognized net loss and unrecognized prior service cost, tax benefit	$ 14	$ 15	$ 28	$ 29

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CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) - USD ($) $ in Thousands	Total	Common Stock [Member]	Retained Earnings [Member]	Treasury Shares [Member]	Accumulated Other Comprehensive Income (Loss) [Member]
Balance Beginning (in shares) at Dec. 31, 2014		9,311,318
Balance beginning at Dec. 31, 2014	$ 125,695	$ 67,181	$ 69,394	$ (11,665)	$ 785
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	5,957		5,957
Other comprehensive income, net of taxes	(310)				(310)
Dividend Reinvestment and Stock Purchase Plan (in shares)		12,005
Dividend Reinvestment and Stock Purchase Plan	188	$ 188
Acquisition of BNB Bancorp, Inc. (in shares)		560,132
Acquisition of BNB Bancorp, Inc.	9,063	$ 9,063
Exercise of stock options (in shares)		13,449
Exercise of stock options	152	$ 152
Excess tax benefit on exercise of stock options	13	13
Compensation expense relating to stock options	10	$ 10
Common stock dividends, $0.32 per share	(3,070)		(3,070)
Balance Ending (in shares) at Jun. 30, 2015		9,896,904
Balance ending at Jun. 30, 2015	137,698	$ 76,607	72,281	(11,665)	475
Balance Beginning (in shares) at Dec. 31, 2015		9,925,547
Balance beginning at Dec. 31, 2015	140,108	$ 76,908	74,629	(11,665)	236
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	5,932		5,932
Other comprehensive income, net of taxes	4,153				4,153
Dividend Reinvestment and Stock Purchase Plan (in shares)		11,715
Dividend Reinvestment and Stock Purchase Plan	192	$ 192
Repurchase of stock warrants	(1,545)	(1,545)
Compensation expense relating to stock options	2	2
Compensation expense relating to restricted stock	45	$ 45
Common stock dividends, $0.32 per share	(3,177)		(3,177)
Balance Ending (in shares) at Jun. 30, 2016		9,937,262
Balance ending at Jun. 30, 2016	$ 145,710	$ 75,602	$ 77,384	$ (11,665)	$ 4,389

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CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) (Parenthetical) - $ / shares	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Statement of Stockholders' Equity [Abstract]
Common stock dividends (in dollars per share)	$ 0.16	$ 0.16	$ 0.32	$ 0.32

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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 5,932	$ 5,957
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation, amortization, and accretion	1,680	1,257
Provision for loan losses	486	746
Increase in cash surrender value of bank owned life insurance	(360)	(314)
Realized gain from sales of securities available-for-sale	(650)	(332)
Realized loss from sales of premises and equipment	35	0
Realized (gain) loss from sales and write-downs of other real estate owned and repossessed assets	346	(9)
Origination of mortgage loans for sale	(4,850)	(3,594)
Realized gains from sales of loans	(102)	(254)
Proceeds from sales of mortgage loans	4,907	3,633
Compensation expense related to stock options	2	10
Compensation expense related to restricted stock	45	0
Changes in:
Accrued income receivable	(224)	(66)
Other assets	46	(2,671)
Other liabilities	(613)	651
TOTAL ADJUSTMENTS	748	(943)
NET CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES	6,680	5,014
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investment securities available-for-sale	36,529	54,955
Proceeds from maturities and calls of investment securities:
Available-for-sale	33,025	10,858
Held-to-maturity	3,342	1,471
Purchases of investment securities:
Available-for-sale	(38,915)	(70,922)
Held-to-maturity	(20,156)	(3,413)
Proceeds from sale of impaired loans	0	4,559
Net increase in loans	(29,740)	(26,123)
Purchase of bank owned life insurance	(4,000)	0
Proceeds from sale of other real estate owned and repossessed assets	0	114
Additions to other real estate owned	(182)	(20)
Purchases of premises and equipment	(3,565)	(231)
Proceeds from sale of premises and equipment	61	21
Net cash acquired from acquisition	0	8,993
NET CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES	(23,601)	(19,738)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits	37,538	38,695
Net decrease in short-term borrowings	(6,846)	(3,914)
Principal payments on long-term debt	(5,221)	(5,272)
Proceeds from issuance of common stock	30	28
Repurchase of stock warrants	(1,545)	0
Proceeds and excess tax benefit from exercise of stock options	0	165
Cash dividends paid on common stock	(3,015)	(2,910)
NET CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES	20,941	26,792
NET CHANGE IN CASH AND CASH EQUIVALENTS	4,020	12,068
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	14,987	15,845
CASH AND CASH EQUIVALENTS AT END OF PERIOD	19,007	27,913
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid	1,780	1,542
Income taxes paid	2,160	2,450
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
Transfer from loans to other real estate owned and repossessed assets	$ 0	$ 79

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Basis of Presentation

6 Months Ended

Jun. 30, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

Basis of Presentation

Substantially all of the assets, liabilities and operations of LCNB Corp. ("LCNB") are attributable to its wholly-owned subsidiary, LCNB National Bank (the "Bank").  The accompanying unaudited consolidated condensed financial statements include the accounts of LCNB and the Bank.

The unaudited interim consolidated condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and the rules and regulations of the Securities and Exchange Commission (the "SEC").  Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations.  In the opinion of management, the unaudited interim consolidated financial statements include all adjustments (consisting of normal, recurring accruals) considered necessary for a fair presentation of financial position, results of operations, and cash flows for the interim periods, as required by Regulation S-X, Rule 10-01.

The consolidated balance sheet as of December 31, 2015 has been derived from the audited consolidated balance sheet as of that day.

Certain prior period data presented in the financial statements have been reclassified to conform with the current year presentation.

LCNB adopted ASU No. 2015-07, "Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)" during the first quarter of 2016. ASU No. 2015-07 applies to entities that measure an investment's fair value using the net asset value per share, or an equivalent, as a practical expedient. It eliminates the requirement to classify such investments within the fair value hierarchy. The amendments are to be applied retrospectively to all periods presented. LCNB measures the fair value of certain mutual fund investments using the net asset value per share practical expedient and disclosures concerning these investments in Note 15 - Fair Value Measurements have been changed to comply with the new guidance. Adoption did not have an impact on LCNB's results of operations or financial position.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Results of operations for the three and six months ended June 30, 2016 are not necessarily indicative of the results to be expected for the full year ending December 31, 2016.  These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements, accounting policies, and financial notes thereto included in LCNB's 2015 Annual Report on Form 10-K filed with the SEC.

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Acquisitions

6 Months Ended

Jun. 30, 2016

Business Combinations [Abstract]

Acquisitions

Acquisitions

On December 29, 2014, LCNB and BNB Bancorp, Inc. (“BNB”) entered into an Agreement and Plan of Merger (“Merger Agreement”) pursuant to which BNB was acquired by LCNB on April 30, 2015. Immediately following the merger of BNB into LCNB, Brookville National Bank ("Brookville"), a wholly-owned subsidiary of BNB, was merged into LCNB National Bank. Brookville operated a main office and a branch office, both in Brookville, Ohio.  These offices became branches of the Bank after the merger.

Under the terms of the Merger Agreement, the shareholders of BNB common stock received, for each share of BNB common stock, (i) $15.75 in cash and (ii) 2.005 LCNB common shares.

The merger with BNB was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration paid were recorded at their estimated fair values as of the merger date, as summarized in the following table (in thousands):

Consideration Paid:
Common shares issued	$	9,063
Cash paid to shareholder(s)	4,403
Total consideration paid	13,466
Identifiable Assets Acquired:
Cash and cash equivalents	13,396
Investment securities	58,239
Federal Reserve Bank stock	130
Loans	34,661
Premises and equipment	2,311
Core deposit intangible	1,418
Other assets	532
Total identifiable assets acquired	110,687
Liabilities Assumed:
Deposits	99,133
Deferred income taxes	576
Other liabilities	57
Total liabilities assumed	99,766
Total Identifiable Net Assets Acquired	10,921
Goodwill resulting from merger	$	2,545

The amount of goodwill recorded reflects LCNB's entrance into a new market and related synergies that are expected to result from the acquisition and represent the excess purchase price over the estimated fair value of the net assets acquired.  The goodwill will not be amortizable on LCNB's financial records, but is deductible for tax purposes.  The core deposit intangible is being amortized over nine years using the straight-line method.

Direct costs related to the acquisition were expensed as incurred and are recorded as a merger-related expense in the consolidated condensed statements of income.  

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Investment Securities

6 Months Ended

Jun. 30, 2016

Investments, Debt and Equity Securities [Abstract]

Investment Securities

Investment Securities

The amortized cost and estimated fair value of investment securities at June 30, 2016 and December 31, 2015 are summarized as follows (in thousands):

	Amortized Cost		Unrealized Gains		Unrealized Losses	Fair Value
June 30, 2016
Available-for-Sale:
U.S. Treasury notes	$	52,567	1,414		—	53,981
U.S. Agency notes	113,554		1,784		—	115,338
U.S. Agency mortgage-backed securities	47,701		592		17	48,276
Certificates of deposit	248		—		—	248
Municipal securities:
Non-taxable	108,842		2,397		6	111,233
Taxable	20,507		721		2	21,226
Mutual funds	2,508		8		17	2,499
Trust preferred securities	49		—		—	49
Equity securities	633		48		3	678
	$	346,609	$	6,964	45	353,528
Held-to-Maturity:
Municipal securities:
Non-taxable	30,084		796		29	30,851
Taxable	9,363		68		—	9,431
	$	39,447	864		29	40,282
December 31, 2015
Available-for-Sale:
U.S. Treasury notes	$	72,672	309		135	72,846
U.S. Agency notes	140,876		164		1,151	139,889
U.S. Agency mortgage-backed securities	29,608		174		404	29,378
Certificates of deposit	248		1		—	249
Municipal securities:
Non-taxable	103,900		1,713		134	105,479
Taxable	26,738		337		134	26,941
Mutual funds	2,517		—		51	2,466
Trust preferred securities	49		1		—	50
Equity securities	659		40		19	680
	$	377,267	2,739		2,028	377,978
Held-to-Maturity:
Municipal securities:
Non-taxable	22,233		95		97	22,231
Taxable	400		—		1	399
	$	22,633	95		98	22,630

Information concerning investment securities with gross unrealized losses at June 30, 2016 and December 31, 2015, aggregated by length of time that individual securities have been in a continuous loss position, is as follows (dollars in thousands):

	Less than Twelve Months			Twelve Months or Greater
	Fair Value		Unrealized Losses	Fair Value		Unrealized Losses
June 30, 2016
Available-for-Sale:
U.S. Treasury notes	$	—	—	$	—	—
U.S. Agency notes	—		—	—		—
U.S. Agency mortgage-backed securities	—		—	3,909		17
Municipal securities:
Non-taxable	—		—	2,770		6
Taxable	1,005		—	451		2
Mutual funds	—		—	263		17
Trust preferred securities	49		—	—		—
Equity securities	68		3	—		—
	$	1,122	3	$	7,393	42
Held-to-Maturity:
Municipal securities:
Non-taxable	$	—	—	2,636		29
Taxable	—		—	—		—
	$	—	—	$	2,636	29
December 31, 2015
Available-for-Sale:
U.S. Treasury notes	$	32,854	75	$	4,846	60
U.S. Agency notes	104,053		1,000	9,869		151
U.S. Agency mortgage-backed securities	19,190		256	4,068		148
Municipal securities:
Non-taxable	13,124		74	7,037		60
Taxable	15,601		114	880		20
Mutual funds	1,215		17	268		34
Trust preferred securities	—		—	—		—
Equity securities	248		12	73		7
	$	186,285	1,548	$	27,041	480
Held-to-Maturity:
Municipal securities:
Non-taxable	$	832	3	$	3,426	94
Taxable	399		1	—		—
	$	1,231	4	$	3,426	94

Management has determined that the unrealized losses at June 30, 2016 are primarily due to fluctuations in market interest rates and do not reflect credit quality deterioration of the securities.   Because LCNB does not have the intent to sell the investments and it is more likely than not that LCNB will not be required to sell the investments before recovery of their amortized cost bases, which may be at maturity, LCNB does not consider these investments to be other-than-temporarily impaired.

Contractual maturities of investment securities at June 30, 2016 were as follows (in thousands).  Actual maturities may differ from contractual maturities when issuers have the right to call or prepay obligations.

	Available-for-Sale			Held-to-Maturity
	Amortized Cost		Fair Value	Amortized Cost	Fair Value
Due within one year	$	23,089	23,181	3,620	3,626
Due from one to five years	150,743		153,748	4,211	4,222
Due from five to ten years	121,380		124,583	11,073	11,239
Due after ten years	506		514	20,543	21,195
	295,718		302,026	39,447	40,282
U.S. Agency mortgage-backed securities	47,701		48,276	—	—
Mutual funds	2,508		2,499	—	—
Trust preferred securities	49		49	—	—
Equity securities	633		678	—	—
	$	346,609	353,528	39,447	40,282

Investment securities with a market value of $228,901,000 and $215,952,000 at June 30, 2016 and December 31, 2015, respectively, were pledged to secure public deposits and for other purposes required as permitted by law.

Certain information concerning the sale of investment securities available-for-sale for the three and six months ended June 30, 2016 and 2015 was as follows (in thousands):

	Three Months Ended   June 30,			Six Months Ended   June 30,
	2016		2015	2016		2015
Proceeds from sales	$	16,100	48,953	$	36,529	54,955
Gross realized gains	300		234	671		345
Gross realized losses	21		13	21		13

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Loans

6 Months Ended

Jun. 30, 2016

Receivables [Abstract]

Loans

Loans

Major classifications of loans at June 30, 2016 and December 31, 2015 are as follows (in thousands):

	June 30, 2016		December 31, 2015
Commercial and industrial	$	45,153	45,275
Commercial, secured by real estate	455,654		419,633
Residential real estate	266,625		273,139
Consumer	18,545		18,510
Agricultural	13,605		13,479
Other loans, including deposit overdrafts	635		665
	800,217		770,701
Deferred net origination costs (fees)	248		237
	800,465		770,938
Less allowance for loan losses	3,373		3,129
Loans, net	$	797,092	767,809

All advances from the Federal Home Loan Bank ("FHLB") of Cincinnati are secured by a blanket pledge of LCNB's 1-4 family first lien mortgage loans in the amount of approximately $225 million and $231 million at June 30, 2016 and December 31, 2015, respectively.  Additionally, LCNB is required to hold minimum levels of FHLB stock, based on the outstanding borrowings.

Loans acquired through mergers are recorded at fair value with no carryover of the acquired entity's previously established allowance for loan losses.  The excess of expected cash flows over the estimated fair value of acquired loans is recognized as interest income over the remaining contractual lives of the loans using the level yield method. Subsequent decreases in expected cash flows will require additions to the allowance for loan losses.  Subsequent improvements in expected cash flows result in the recognition of additional interest income over the then-remaining contractual lives of the loans.

Impaired loans acquired are accounted for under FASB ASC 310-30.  Factors considered in evaluating whether an acquired loan was impaired include delinquency status and history, updated borrower credit status, collateral information, and updated loan-to-value information.  The difference between contractually required payments at the time of acquisition and the cash flows expected to be collected is referred to as the nonaccretable difference.  The interest component of the cash flows expected to be collected is referred to as the accretable yield and is recognized as interest income over the remaining contractual life of the loan using the level yield method.   Subsequent decreases in expected cash flows will require additions to the allowance for loan losses.  Subsequent improvements in expected cash flows will result in a reclassification from the nonaccretable difference to the accretable yield.

Non-accrual, past-due, and accruing restructured loans as of June 30, 2016 and December 31, 2015 are as follows (in thousands):

	June 30, 2016		December 31, 2015
Non-accrual loans:
Commercial and industrial	$	—	—
Commercial, secured by real estate	1,362		876
Residential real estate	951		799
Consumer	—		—
Agricultural	384		48
Total non-accrual loans	2,697		1,723
Past-due 90 days or more and still accruing	369		559
Total non-accrual and past-due 90 days or more and still accruing	3,066		2,282
Accruing restructured loans	13,855		13,723
Total	$	16,921	16,005

The allowance for loan losses for the three and six months ended June 30, 2016 and 2015 are as follows (in thousands):

	Commercial & Industrial			Commercial, Secured by Real Estate		Residential Real Estate		Consumer		Agricultural		Other		Total
Three Months Ended June 30, 2016
Allowance for loan losses:
Balance, beginning of period	$	247		1,868		896		81		56		2		3,150
Provision charged to expenses	74			320		(1	)	(12	)	6		9		396
Losses charged off	(49		)	(117	)	(14	)	(9	)	—		(19	)	(208	)
Recoveries	1			—		4		20		—		10		35
Balance, end of period	$	273		2,071		885		80		62		2		3,373
Six Months Ended June 30, 2016
Allowance for loan losses:
Balance, beginning of year	$	244		1,908		854		54		66		3		3,129
Provision charged to expenses	74			285		65		49		(4	)	17		486
Losses charged off	(49		)	(140	)	(42	)	(53	)	—		(42	)	(326	)
Recoveries	4			18		8		30		—		24		84
Balance, end of period	$	273		2,071		885		80		62		2		3,373
Three Months Ended June 30, 2015
Allowance for loan losses:
Balance, beginning of period	$	131		1,640		934		54		77		1		2,837
Provision charged to expenses	41			552		53		16		6		9		677
Losses charged off	(11		)	(633	)	(115	)	(18	)	(67	)	(12	)	(856	)
Recoveries	1			96		42		10		67		5		221
Balance, end of period	$	162		1,655		914		62		83		3		2,879
Six Months Ended June 30, 2015
Allowance for loan losses:
Balance, beginning of year	$	129		1,990		926		63		11		2		3,121
Provision charged to expenses	42			515		117		(13	)	72		13		746
Losses charged off	(11		)	(946	)	(197	)	(29	)	(67	)	(26	)	(1,276	)
Recoveries	2			96		68		41		67		14		288
Balance, end of period	$	162		1,655		914		62		83		3		2,879

A breakdown of the allowance for loan losses and the loan portfolio by loan segment at June 30, 2016 and December 31, 2015 are as follows (in thousands):

	Commercial & Industrial		Commercial, Secured by Real Estate	Residential Real Estate	Consumer	Agricultural	Other	Total
June 30, 2016
Allowance for loan losses:
Individually evaluated for impairment	$	6	195	90	9	—	—	300
Collectively evaluated for impairment	267		1,875	795	71	62	2	3,072
Acquired credit impaired loans	—		1	—	—	—	—	1
Balance, end of period	$	273	2,071	885	80	62	2	3,373
Loans:
Individually evaluated for impairment	$	354	12,672	1,584	47	384	—	15,041
Collectively evaluated for impairment	43,452		436,405	262,558	18,571	13,230	164	774,380
Acquired credit impaired loans	1,363		6,249	2,941	20	—	471	11,044
Balance, end of period	$	45,169	455,326	267,083	18,638	13,614	635	800,465
December 31, 2015
Allowance for loan losses:
Individually evaluated for impairment	$	9	306	48	—	—	—	363
Collectively evaluated for impairment	235		1,602	806	54	66	3	2,766
Acquired credit impaired loans	—		—	—	—	—	—	—
Balance, end of period	$	244	1,908	854	54	66	3	3,129
Loans:
Individually evaluated for impairment	$	370	12,351	1,541	56	—	—	14,318
Collectively evaluated for impairment	43,726		399,092	269,001	18,516	13,438	179	743,952
Acquired credit impaired loans	1,191		7,877	3,039	27	48	486	12,668
Balance, end of period	$	45,287	419,320	273,581	18,599	13,486	665	770,938

The risk characteristics of LCNB's material loan portfolio segments are as follows:

Commercial and Industrial Loans. LCNB’s commercial and industrial loan portfolio consists of loans for various purposes, including loans to fund working capital requirements (such as inventory and receivables financing) and purchases of machinery and equipment.  LCNB offers a variety of commercial and industrial loan arrangements, including term loans, balloon loans, and lines of credit.  Most commercial and industrial loans have a variable rate, with adjustment periods ranging from one month to five years.  Adjustments are generally based on a publicly available index rate plus a margin.  The margin varies based on the terms and collateral securing the loan.  Commercial and industrial loans are offered to businesses and professionals for short and medium terms on both a collateralized and uncollateralized basis. Commercial and industrial loans typically are underwritten on the basis of the borrower’s ability to make repayment from the cash flow of the business.  Collateral, when obtained, may include liens on furniture, fixtures, equipment, inventory, receivables, or other assets.  As a result, such loans involve complexities, variables, and risks that require thorough underwriting and more robust servicing than other types of loans.

Commercial, Secured by Real Estate Loans.  Commercial real estate loans include loans secured by a variety of commercial, retail, and office buildings, religious facilities, multifamily (more than two-family) residential properties, construction and land development loans, and other land loans. Commercial real estate loan products generally amortize over five to twenty-five years and are payable in monthly principal and interest installments.  Some have balloon payments due within one to ten years after the origination date.  Many have adjustable interest rates with adjustment periods ranging from one to ten years, some of which are subject to established “floor” interest rates.

Commercial real estate loans are underwritten based on the ability of the property, in the case of income producing property, or the borrower’s business to generate sufficient cash flow to amortize the debt. Secondary emphasis is placed upon global debt service, collateral value, financial strength of any guarantors, and other factors. Commercial real estate loans are generally originated with a 75% maximum loan to appraised value ratio.

Residential Real Estate Loans.  Residential real estate loans include loans secured by first or second mortgage liens on one to two-family residential property.  Home equity lines of credit and mortgage loans secured by owner-occupied agricultural property are included in this category.  First and second mortgage loans are generally amortized over five to thirty years with monthly principal and interest payments.  Home equity lines of credit generally have a five year draw period with interest only payments followed by a repayment period with monthly payments based on the amount outstanding.  LCNB offers both fixed and adjustable rate mortgage loans.  Adjustable rate loans are available with adjustment periods ranging between one to ten years and adjust according to an established index plus a margin, subject to certain floor and ceiling rates.  Home equity lines of credit have a variable rate based on the Wall Street Journal prime rate plus a margin.

LCNB does not originate reverse mortgage loans or residential real estate loans generally considered to be “subprime.”

Residential real estate loans are underwritten primarily based on the borrower’s ability to repay, prior credit history, and the value of the collateral.  LCNB generally requires private mortgage insurance for first mortgage loans that have a loan to appraised value ratio of greater than 80%.

Consumer Loans.  LCNB’s portfolio of consumer loans generally includes secured and unsecured loans to individuals for household, family and other personal expenditures.  Secured loans include loans to fund the purchase of automobiles, recreational vehicles, boats, and similar acquisitions. Consumer loans made by LCNB generally have fixed rates and terms ranging up to 72 months, depending upon the nature of the collateral, size of the loan, and other relevant factors.

Consumer loans generally have higher interest rates, but pose additional risks of collectability and loss when compared to certain other types of loans. Collateral, if present, is generally subject to damage, wear, and depreciation.  The borrower’s ability to repay is of primary importance in the underwriting of consumer loans.

Agricultural Loans.  LCNB’s portfolio of agricultural loans includes loans for financing agricultural production or for financing the purchase of equipment used in the production of agricultural products.  LCNB’s agricultural loans are generally secured by farm machinery, livestock, crops, vehicles, or other agricultural related collateral.

LCNB uses a risk-rating system to quantify loan quality.  A loan is assigned to a risk category based on relevant information about the ability of the borrower to service the debt including, but not limited to, current financial information, historical payment experience, credit documentation, public information, and current economic trends.  The categories used are:

• Pass – loans categorized in this category are higher quality loans that do not fit any of the other categories described below.

• Other Assets Especially Mentioned (OAEM) - loans in this category are currently protected but are potentially weak. These loans constitute a risk but not to the point of justifying a classification of substandard.  The credit risk may be relatively minor yet constitute an undue risk in light of the circumstances surrounding a specific asset.

• Substandard – loans in this category are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any.  Assets so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.  They are characterized by the possibility that LCNB will sustain some loss if the deficiencies are not corrected.

• Doubtful – loans classified in this category have all the weaknesses inherent in loans classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

A breakdown of the loan portfolio by credit quality indicators at June 30, 2016 and December 31, 2015 is as follows (in thousands):

	Pass		OAEM	Substandard	Doubtful	Total
June 30, 2016
Commercial & industrial	$	44,477	39	653	—	45,169
Commercial, secured by real estate	438,822		4,487	12,017	—	455,326
Residential real estate	261,423		998	4,662	—	267,083
Consumer	18,528		—	110	—	18,638
Agricultural	12,037		850	727	—	13,614
Other	635		—	—	—	635
Total	$	775,922	6,374	18,169	—	800,465
December 31, 2015
Commercial & industrial	$	44,596	—	691	—	45,287
Commercial, secured by real estate	397,938		9,316	12,066	—	419,320
Residential real estate	267,567		1,935	4,079	—	273,581
Consumer	18,528		—	71	—	18,599
Agricultural	12,246		850	390	—	13,486
Other	665		—	—	—	665
Total	$	741,540	12,101	17,297	—	770,938

A loan portfolio aging analysis at June 30, 2016 and December 31, 2015 is as follows (in thousands):

	30-59 Days Past Due		60-89 Days Past Due	Greater Than 90 Days Past Due	Total Past Due	Current	Total Loans Receivable	Total Loans Greater Than 90 Days and Accruing
June 30, 2016
Commercial & industrial	$	15	—	—	15	45,154	45,169	—
Commercial, secured by real estate	—		—	1,362	1,362	453,964	455,326	—
Residential real estate	590		436	1,140	2,166	264,917	267,083	335
Consumer	16		22	34	72	18,566	18,638	34
Agricultural	44		—	384	428	13,186	13,614	—
Other	97		—	—	97	538	635	—
Total	$	762	458	2,920	4,140	796,325	800,465	369
December 31, 2015
Commercial & industrial	$	—	—	—	—	45,287	45,287	—
Commercial, secured by real estate	73		81	876	1,030	418,290	419,320	—
Residential real estate	777		198	1,124	2,099	271,482	273,581	516
Consumer	62		7	43	112	18,487	18,599	43
Agricultural	—		—	—	—	13,486	13,486	—
Other	109		—	—	109	556	665	—
Total	$	1,021	286	2,043	3,350	767,588	770,938	559

Impaired loans, including acquired credit impaired loans, at June 30, 2016 and December 31, 2015 are as follows (in thousands):

	Recorded Investment		Unpaid Principal Balance	Related Allowance
June 30, 2016
With no related allowance recorded:
Commercial & industrial	$	1,362	1,635	—
Commercial, secured by real estate	16,289		18,063	—
Residential real estate	3,808		4,980	—
Consumer	33		48	—
Agricultural	384		384	—
Other	471		665	—
Total	$	22,347	25,775	—
With an allowance recorded:
Commercial & industrial	$	355	354	6
Commercial, secured by real estate	2,632		2,709	196
Residential real estate	717		855	90
Consumer	34		34	9
Agricultural	—		—	—
Other	—		—	—
Total	$	3,738	3,952	301
Total:
Commercial & industrial	$	1,717	1,989	6
Commercial, secured by real estate	18,921		20,772	196
Residential real estate	4,525		5,835	90
Consumer	67		82	9
Agricultural	384		384	—
Other	471		665	—
Total	$	26,085	29,727	301
December 31, 2015
With no related allowance recorded:
Commercial & industrial	$	1,205	1,500	—
Commercial, secured by real estate	16,345		18,335	—
Residential real estate	3,734		5,055	—
Consumer	81		109	—
Agricultural	48		151	—
Other	486		701	—
Total	$	21,899	25,851	—
With an allowance recorded:
Commercial & industrial	$	356	356	9
Commercial, secured by real estate	3,883		4,014	306
Residential real estate	846		958	48
Consumer	2		1	—
Agricultural	—		—	—
Other	—		—	—
Total	$	5,087	5,329	363
Total:
Commercial & industrial	$	1,561	1,856	9
Commercial, secured by real estate	20,228		22,349	306
Residential real estate	4,580		6,013	48
Consumer	83		110	—
Agricultural	48		151	—
Other	486		701	—
Total	$	26,986	31,180	363

The following presents information related to the average recorded investment and interest income recognized on impaired loans, including acquired credit impaired loans, for the three and six months ended June 30, 2016 and 2015 (in thousands):

	2016			2015
	Average Recorded Investment		Interest Income Recognized	Average Recorded Investment	Interest Income Recognized
Three Months Ended June 30,
With no related allowance recorded:
Commercial & industrial	$	964	26	1,609	60
Commercial, secured by real estate	17,292		278	19,259	742
Residential real estate	3,855		123	4,175	138
Consumer	40		8	93	3
Agricultural	423		123	110	35
Other	495		20	516	20
Total	$	23,069	578	25,762	998
With an allowance recorded:
Commercial & industrial	$	358	5	389	6
Commercial, secured by real estate	2,651		20	3,746	29
Residential real estate	780		8	884	10
Consumer	34		1	18	—
Agricultural	—		—	—	—
Other	—		—	—	—
Total	$	3,823	34	5,037	45
Total:
Commercial & industrial	$	1,322	31	1,998	66
Commercial, secured by real estate	19,943		298	23,005	771
Residential real estate	4,635		131	5,059	148
Consumer	74		9	111	3
Agricultural	423		123	110	35
Other	495		20	516	20
Total	$	26,892	612	30,799	1,043
Six Months Ended June 30,
With no related allowance recorded:
Commercial & industrial	$	964	55	1,437	82
Commercial, secured by real estate	17,460		660	20,317	1,099
Residential real estate	3,823		194	4,305	221
Consumer	54		15	101	7
Agricultural	422		135	107	132
Other	495		40	515	39
Total	$	23,218	1,099	26,782	1,580
With an allowance recorded:
Commercial & industrial	$	362	10	393	11
Commercial, secured by real estate	2,671		42	3,694	56
Residential real estate	760		16	862	20
Consumer	34		2	18	1
Agricultural	—		—	—	—
Other	—		—	—	—
Total	$	3,827	70	4,967	88
Total:
Commercial & industrial	$	1,326	65	1,830	93
Commercial, secured by real estate	20,131		702	24,011	1,155
Residential real estate	4,583		210	5,167	241
Consumer	88		17	119	8
Agricultural	422		135	107	132
Other	495		40	515	39
Total	$	27,045	1,169	31,749	1,668

Of the interest income recognized on impaired loans during the six months ended June 30, 2016 and 2015, approximately $46,000 and $11,000, respectively, were recognized on a cash basis.

Loan modifications that were classified as troubled debt restructurings during the three and six months ended June 30, 2016 and 2015 are as follows (dollars in thousands):

	2016				2015
	Number of Loans	Pre-Modification Recorded Balance		Post-Modification Recorded Balance	Number of Loans	Pre-Modification Recorded Balance		Post-Modification Recorded Balance
Three Months Ended June 30,
Commercial & industrial	—	$	—	—	1	$	72	74
Commercial, secured by real estate	—	—		—	—	—		—
Residential real estate	1	27		27	1	50		50
Consumer	1	10		10	—	—		—
Total	2	$	37	37	2	$	122	124
Six Months Ended June 30,
Commercial & industrial	—	$	—	—	1	$	72	74
Commercial, secured by real estate	1	$	299	372	—	—		—
Residential real estate	2	45		45	4	137		137
Consumer	2	27		27	—	—		—
Total	5	$	371	444	5	$	209	211

Each restructured loan is separately negotiated with the borrower and includes terms and conditions that reflect the borrower's ability to pay the debt as modified.  Modifications may include interest only payments for a period of time, temporary or permanent reduction of the loan's interest rate, capitalization of delinquent interest, or extensions of the maturity date.

LCNB is not committed to lend additional funds to borrowers whose loan terms were modified in a troubled debt restructuring.

There were no troubled debt restructurings that subsequently defaulted within twelve months of the restructuring date for the six months ended June 30, 2016 and that remained in default at period end. A restructured commercial real estate loan with a recorded balance of $77,000 was classified as non-accrual at June 30, 2015, which was within twelve months of the loan's modification date.

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Acquired Credit Impaired Loans

6 Months Ended

Jun. 30, 2016

Receivables [Abstract]

Acquired Credit Impaired Loans

Acquired Credit Impaired Loans

The following table provides at June 30, 2016 and December 31, 2015 the major classifications of acquired credit impaired loans that are accounted for in accordance with FASB ASC 310-30 (in thousands):

	June 30, 2016		December 31, 2015
Commercial & industrial	$	1,363	1,191
Commercial, secured by real estate	6,249		7,877
Residential real estate	2,941		3,039
Consumer	20		27
Agricultural	—		48
Other loans, including deposit overdrafts	471		486
	11,044		12,668
Less allowance for loan losses	1		—
Loans, net	$	11,043	12,668

The following table provides the outstanding balance and related carrying amount for acquired credit impaired loans at the dates indicated (in thousands):

	June 30, 2016		December 31, 2015
Outstanding balance	$	14,369	16,507
Carrying amount	11,043		12,668

Activity during the six months ended June 30, 2016 and 2015 for the accretable discount related to acquired credit impaired loans is as follows (in thousands):

	2016			2015
Accretable discount at beginning of year	$	1,503		2,674
Accretable discount acquired during period	—			413
Reclass from nonaccretable discount to accretable discount	307			943
Less disposals	(3		)	(857	)
Less accretion	(439		)	(1,404	)
Accretable discount at end of period	$	1,368		1,769

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Other Real Estate Owned

6 Months Ended

Jun. 30, 2016

Real Estate [Abstract]

Other Real Estate Owned

Other Real Estate Owned

Other real estate owned includes property acquired through foreclosure or deed-in-lieu of foreclosure and are included in "other assets" in the consolidated condensed balance sheets.  Changes in other real estate owned are as follows (in thousands):

	Six Months Ended June 30,
	2016			2015
Balance, beginning of year	$	846		1,370
Additions	182			99
Reductions due to sales	—			(105	)
Reductions due to valuation write downs	(346		)	—
Balance, end of period	$	682		1,364

Other real estate owned at June 30, 2016 and December 31, 2015 consisted of (dollars in thousands):

	June 30, 2016		December 31, 2015
Commercial real estate	$	682	$	846
Residential real estate	—		—
	$	682	$	846

The total recorded investment in residential consumer mortgage loans secured by residential real estate that was in the process of foreclosure at June 30, 2016 was $477,000.

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Affordable Housing Tax Credit Limited Partnership

6 Months Ended

Jun. 30, 2016

Equity Method Investments and Joint Ventures [Abstract]

Affordable Housing Tax Credit Limited Partnership

Affordable Housing Tax Credit Limited Partnership

LCNB is a limited partner in a limited partnership that sponsors affordable housing projects utilizing the Low Income Housing Tax Credit (LIHTC) pursuant to Section 42 of the Internal Revenue Code. The purpose of this investment is to achieve a satisfactory return on capital, to facilitate the sale of additional affordable housing product offerings, and to assist in achieving goals associated with the Community Reinvestment Act. The primary activities of the limited partnership include the identification, development, and operation of multi-family housing that is leased to qualifying residential tenants.

The following table presents the balances of LCNB's affordable housing tax credit investment and related unfunded commitment at June 30, 2016 and December 31, 2015 (in thousands):

	June 30, 2016		December 31, 2015
Affordable housing tax credit investment	$	1,000	1,000
Less amortization	53		12
Net affordable housing tax credit investment	$	947	988
Unfunded commitment	$	865	907

LCNB expects to fund the unfunded commitment over 9.5 years.

The following table presents other information relating to LCNB's affordable housing tax credit investment for the periods indicated (in thousands):

	Six Months ended June 30,
	2016		2015
Tax credits and other tax benefits recognized	$	55	—
Tax credit amortization expense included in provision for income taxes	41		—

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Short-Term Borrowings

6 Months Ended

Jun. 30, 2016

Debt Disclosure [Abstract]

Short-Term Borrowings

Short-Term Borrowings

Short-term borrowings at June 30, 2016 and December 31, 2015 are as follows (dollars in thousands):

	June 30, 2016				December 31, 2015
	Amount		Rate		Amount		Rate
Line of credit	$	17,310	1.00	%	$	13,187	1.00	%
FHLB short-term advance	—		—	%	10,000		0.35	%
Repurchase agreements	13,231		0.10	%	14,200		0.10	%
	$	30,541	0.61	%	$	37,387	0.48	%

Repurchase agreements are an option customers may use in managing their cash positions and mature the next business day after issuance. Repurchase agreements at June 30, 2016 and December 31, 2015 were fully secured by U.S. Agency notes and such collateral securities were held by the Federal Reserve Bank.

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Income Taxes

6 Months Ended

Jun. 30, 2016

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

A reconciliation between the statutory income tax and LCNB's effective tax rate on income from continuing operations follows:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2016		2015		2016		2015
Statutory tax rate	34.2	%	34.0	%	34.2	%	34.0	%
Increase (decrease) resulting from:
Tax exempt interest	(6.6	)%	(5.4	)%	(6.4	)%	(5.4	)%
Tax exempt income on bank owned life insurance	(1.6	)%	(1.2	)%	(1.5	)%	(1.3	)%
Other, net	—	%	0.4	%	(0.1	)%	0.4	%
Effective tax rate	26.0	%	27.8	%	26.2	%	27.7	%

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Commitments and Contingent Liabilities

6 Months Ended

Jun. 30, 2016

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingent Liabilities

Commitments and Contingent Liabilities

LCNB is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers.  These financial instruments include commitments to extend credit.  They involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheets.  Exposure to credit loss in the event of nonperformance by the other parties to financial instruments for commitments to extend credit is represented by the contract amount of those instruments.

The Bounce Protection product, a customer deposit overdraft program, is offered as a service and does not constitute a contract between the customer and LCNB.

LCNB uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.  

Financial instruments whose contract amounts represent off-balance-sheet credit risk at June 30, 2016 and December 31, 2015 are as follows (in thousands):

	June 30, 2016		December 31, 2015
Commitments to extend credit:
Commercial loans	$	6,956	8,160
Other loans
Fixed rate	5,395		2,293
Adjustable rate	1,707		1,362
Unused lines of credit:
Fixed rate	4,584		6,378
Adjustable rate	84,678		90,153
Unused overdraft protection amounts on demand and NOW accounts	9,858		10,057
Standby letters of credit	357		457
	$	113,535	118,860

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.  Unused lines of credit include amounts not drawn on line of credit loans.  Commitments to extend credit and unused lines of credit generally have fixed expiration dates or other termination clauses.

Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party.  These guarantees generally are fully secured and have varying maturities.  

LCNB evaluates each customer's credit worthiness on a case-by-case basis.  The amount of collateral obtained, if deemed necessary, is based on management's credit evaluation of the borrower.  Collateral held varies, but may include accounts receivable, inventory, residential realty, income-producing commercial property, and property, plant, and equipment.

Capital expenditures include the construction or acquisition of new office buildings, improvements to LCNB's offices, purchases of furniture and equipment, and additions or improvements to LCNB's information technology system. Commitments outstanding for capital expenditures as of June 30, 2016 totaled approximately $7,903,000, which includes estimated costs for construction of a new operations center in Lebanon, Ohio.

Management believes that LCNB has sufficient liquidity to fund its lending and capital expenditure commitments.

LCNB and its subsidiaries are parties to various claims and proceedings arising in the normal course of business.  Management, after consultation with legal counsel, believes that the liabilities, if any, arising from such proceedings and claims will not be material to the consolidated financial position or results of operations.

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Accumulated Other Comprehensive Income

6 Months Ended

Jun. 30, 2016

Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract]

Accumulated Other Comprehensive Income

Accumulated Other Comprehensive Income

Changes in accumulated other comprehensive income for the six months ended June 30, 2016 and 2015 are as follows (in thousands):

	Unrealized Gains and Losses on Available-for-Sale Securities			Changes in Pension Plan Assets and Benefit Obligations		Total
June 30, 2016
Balance at beginning of period	$	469		(233	)	236
Before reclassifications	4,526			56		4,582
Reclassifications	(429		)	—		(429	)
Balance at end of period	$	4,566		(177	)	4,389
June 30, 2015
Balance at beginning of period	$	1,126		(341	)	785
Before reclassifications	(149		)	58		(91	)
Reclassifications	(219		)	—		(219	)
Balance at end of period	$	758		(283	)	475

Reclassifications out of accumulated other comprehensive income during the three and six months ended June 30, 2016 and 2015 and the affected line items in the consolidated condensed statements of income are as follows (in thousands):

	Three Months Ended June 30,			Six Months Ended June 30,			Affected Line Item in the Consolidated Condensed Statements of Income
	2016		2015	2016		2015
Realized gain on sale of securities	$	279	221	$	650	332	Net gain on sales of securities
Less provision for income taxes	95		75	221		113	Provision for income taxes
Reclassification adjustment, net of taxes	$	184	146	$	429	219

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Retirement Plans

6 Months Ended

Jun. 30, 2016

Compensation and Retirement Disclosure [Abstract]

Retirement Plans

Retirement Plans

LCNB participates in a noncontributory defined benefit multi-employer retirement plan that covers substantially all regular full-time employees hired before January 1, 2009. Employees hired before this date who received a benefit reduction under certain amendments to the defined benefit retirement plan receive an automatic contribution of 5% or 7% of their annual compensation, depending on the sum of an employee's age and vesting service, into their defined contribution plans (401(k) plans), regardless of the contributions made by the employees.  These contributions are made annually and these employees do not receive any employer matches to their 401(k) contributions.

Employees hired on or after January 1, 2009 receive a 50% employer match on their contributions into the 401(k) plan, up to a maximum LCNB contribution of 3% of each individual employee's annual compensation.  

Funding and administrative costs of the qualified noncontributory defined benefit retirement plan and 401(k) plan charged to pension and other employee benefits in the consolidated condensed statements of income for the three and six-month periods ended June 30, 2016 and 2015 are as follows (in thousands):

	For the Three Months Ended June 30,			For the Six Months Ended June 30,
	2016		2015	2016		2015
Qualified noncontributory defined benefit retirement plan	$	220	273	$	440	543
401(k) plan	77		90	160		177

Certain highly compensated employees participate in a nonqualified defined benefit retirement plan.  The nonqualified plan ensures that participants receive the full amount of benefits to which they would have been entitled under the noncontributory defined benefit retirement plan in the absence of limits on benefit levels imposed by certain sections of the Internal Revenue Code.

The components of net periodic pension cost of the nonqualified defined benefit retirement plan for the three and six months ended June 30, 2016 and 2015 are summarized as follows (in thousands):

	Three Months Ended June 30,			Six Months Ended June 30,
	2016		2015	2016		2015
Service cost	$	10	10	$	20	19
Interest cost	19		17	38		34
Amortization of unrecognized net loss	42		43	84		85
Net periodic pension cost	$	71	70	$	142	138

Amounts recognized in accumulated other comprehensive income, net of tax, at June 30, 2016 and December 31, 2015 for the nonqualified defined benefit retirement plan consists of (in thousands):

	June 30, 2016		December 31, 2015
Net actuarial loss	$	177	233

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Stock Based Compensation

6 Months Ended

Jun. 30, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock Based Compensation

Stock Based Compensation

LCNB established an Ownership Incentive Plan (the "2002 Plan") during 2002 that allowed for stock-based awards to eligible employees, as determined by the Board of Directors.  The awards were made in the form of stock options, share awards, and/or appreciation rights.  The 2002 Plan provided for the issuance of up to 200,000 shares. The 2002 Plan expired on April 16, 2012. Any outstanding unexercised options, however, continue to be exercisable in accordance with their terms.

The 2015 Ownership Incentive Plan (the "2015 Plan") was ratified by LCNB's shareholders at the annual meeting on April 28, 2015 and allows for stock-based awards to eligible employees, as determined by the Compensation Committee of the Board of Directors. Awards may be made in the form of stock options, appreciation rights, restricted shares, and/or restricted share units. The 2015 Plan provides for the issuance of up to 450,000 shares. The 2015 Plan will terminate on April 28, 2025 and is subject to earlier termination by the Compensation Committee.

Stock-based awards may be in the form of treasury shares or new shares.

LCNB has not granted stock option awards since 2012. Options granted to date under the 2002 Plan vest ratably over a five-year period and expire ten years after the date of grant. Stock options outstanding at June 30, 2016 were as follows:

	Outstanding Stock Options				Exercisable Stock Options
Exercise Price Range	Number	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)	Number	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)
$9.00 - $10.99	17,633	$	9.00	2.6	17,633	$	9.00	2.6
$11.00 - $12.99	53,266	12.04		4.1	51,521	12.03		4.0
$17.00 - $18.99	5,160	17.88		0.6	5,160	17.88		0.6
	76,059	11.73		3.5	74,314	11.71		3.4

The following table summarizes stock option activity for the periods indicated:

	2016				2015
	Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price
Outstanding, January 1,	83,861		$	12.39	99,810		$	12.16
Granted	—		—		—		—
Exercised	—		—		(13,449	)	11.31
Expired	(7,802	)	18.76		(2,500	)	9.00
Outstanding, June 30,	76,059		11.73		83,861		12.39
Exercisable, June 30,	74,314		11.71		75,072		12.40

The aggregate intrinsic value (the amount by which the current market value of the underlying stock exceeds the exercise price of the option) for options outstanding at June 30, 2016 that were "in the money" (market price greater than exercise price) was $320,000.  The aggregate intrinsic value at that date for only the options that were exercisable was $314,000.  The aggregate intrinsic value for options outstanding at June 30, 2015 that were in the money was $349,000 and the aggregate intrinsic value at that date for only the options that were exercisable was $314,000.  The intrinsic value changes based upon fluctuations in the market value of LCNB's common stock.

Total expense related to options included in salaries and employee benefits for the three and six months ended June 30, 2016 was $1,000 and $2,000, respectively. The related tax benefit for the three and six months ended June 30, 2016 was $0 and $1,000, respectively. Total expense related to options included in salaries and employee benefits for the three and six months ended June 30, 2015 was $3,000 and $10,000, respectively. The related tax benefit for the three and six months ended June 30, 2015 was $1,000 and $3,000, respectively. Unrecognized compensation cost related to option awards to be recognized through the first quarter of 2017 is approximately $4,000.

Restricted stock awards granted under the 2015 Plan were as follows:

	2016				2015
	Shares		Weighted Average Grant Date Fair Value		Shares	Weighted Average Grant Date Fair Value
Outstanding, January 1,	16,038		$	15.47	—	$	—
Granted	—		—		—	—
Vested	(5,255	)	15.47		—	—
Forfeited	—		—		—	—
Outstanding, June 30,	10,783		$	15.47	—	$	—

Total expense related to restricted stock awards included in salaries and wages in the consolidated condensed statements of income for the three and six months ended June 30, 2016 was $23,000 and $45,000, respectively. The related tax benefit for the three and six months end June 30, 2016 was $7,000 and $15,000, respectively. Unrecognized compensation expense for restricted stock awards was $113,000 at June 30, 2016 and is expected to be recognized over a period of 4.5 years.

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Earnings Per Common Share

6 Months Ended

Jun. 30, 2016

Earnings Per Share [Abstract]

Earnings Per Common Share

Earnings per Common Share

Basic earnings per common share is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period.  Diluted earnings per common share is adjusted for the dilutive effects of stock options, warrants, and restricted stock.  The diluted average number of common shares outstanding has been increased for the assumed exercise of stock options and warrants with proceeds used to purchase treasury shares at the average market price for the period.  The computations are as follows for the three and six months ended June 30, 2016 and 2015 (dollars in thousands, except share and per share data):

	For the Three Months Ended June 30,			For the Six Months Ended June 30,
	2016		2015	2016		2015
Net income	$	2,968	3,123	$	5,932	5,957
Weighted average number of shares outstanding used in the calculation of basic earnings per common share	9,922,024		9,694,732	9,919,070		9,504,739
Add dilutive effect of:
Stock options	18,299		18,955	17,767		17,629
Stock warrants	—		91,041	32,465		86,682
Restricted shares	3,474		—	2,598		—
Adjusted weighted average number of shares outstanding used in the calculation of diluted earnings per common share	9,943,797		9,804,728	9,971,900		9,609,050
Earnings per common share:
Basic	$	0.30	0.33	$	0.60	0.63
Diluted	0.29		0.32	0.59		0.62

Options to purchase 5,160 and 12,962 shares of common stock at a weighted average price of $17.88 and $18.41 per share were outstanding at June 30, 2016 and 2015, respectively, but were not included in the computation of diluted earnings per common share because the exercise prices of the options were greater than the average market price of the common shares.

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Fair Value Measurements

6 Months Ended

Jun. 30, 2016

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

LCNB measures certain assets at fair value using various valuation techniques and assumptions, depending on the nature of the asset.  Fair value is defined as the price that would be received from the sale of an asset in an orderly transaction between market participants at the measurement date.

The inputs to the valuation techniques used to measure fair value are assigned to one of three broad levels:

• Level 1 – quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the reporting date.

• Level 2 – inputs other than quoted prices included within level 1 that are observable for the asset or liability either directly or indirectly.  Level 2 inputs may include quoted prices for similar assets in active markets,  quoted prices for identical assets or liabilities in markets that are not active, inputs other than quoted prices (such as interest rates or yield curves) that are observable for the asset or liability, and inputs that are derived from or corroborated by observable market data.

• Level 3 - inputs that are unobservable for the asset or liability.

The majority of LCNB's financial debt securities are classified as available-for-sale.  The securities are reported at fair value with unrealized holding gains and losses reported net of income taxes in accumulated other comprehensive income.

LCNB utilizes a pricing service for determining the fair values of most of its investment securities.  Fair value for U.S. Treasury notes are determined based on market quotations (level 1).  Fair value for most of the other investment securities is calculated using the discounted cash flow method for each security.  The discount rates for these cash flows are estimated by the pricing service using rates observed in the market (level 2).  Cash flow streams are dependent on estimated prepayment speeds and the overall structure of the securities given existing market conditions.  In addition, LCNB has invested in trust preferred securities, equity securities, and three mutual funds that are not priced by the pricing service. Market quotations (level 1) are used to determine fair values for the trust preferred securities, equity securities, and a publicly traded mutual fund. Investments in two mutual funds that are measured at fair value using net asset values ("NAV") per share as a practical expedient are not required to be classified in the fair value hierarchy.  These funds can be redeemed at any time at their current NAVs. An investment in a mutual fund that is not traded in an active market is considered to have level 2 inputs because an investor can have its interest in the fund redeemed for the balance of its capital account at any quarter-end assuming the fund is given a 60 day notice.  The investment in this fund is carried at fair value, which approximates cost.

Assets that may be recorded at fair value on a nonrecurring basis include impaired loans, other real estate owned, and other repossessed assets.  A loan is considered impaired when management believes it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement.  Impaired loans are carried at the present value of estimated future cash flows using the loan's existing rate or the fair value of collateral if the loan is collateral dependent, if this value is less than the loan balance.  The inputs are considered to be level 3.

Other real estate owned is adjusted to fair value upon transfer of the loan to foreclosed assets, usually based on an appraisal of the property.  Subsequently, foreclosed assets are carried at the lower of carrying value or fair value.  These inputs are also considered to be level 3.

The following table summarizes the valuation of LCNB's assets recorded at fair value by input levels as of June 30, 2016 and December 31, 2015 (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)
June 30, 2016
Recurring fair value measurements:
	Investment securities available-for-sale:
	U.S. Treasury notes	$	53,981	53,981	—	—
	U.S. Agency notes	115,338		—	115,338	—
	U.S. Agency mortgage-backed securities	48,276		—	48,276	—
	Certificates of deposit with other banks	248		—	248	—
	Municipal securities:
	Non-taxable	111,233		—	111,233	—
	Taxable	21,226		—	21,226	—
	Mutual funds	1,000		—	1,000	—
	Mutual funds measured at net asset value (a)	1,499
	Trust preferred securities	49		49	—	—
	Equity securities	678		678	—	—
	Total recurring fair value measurements	$	353,528	54,708	297,321	—
Nonrecurring fair value measurements:
	Impaired loans	$	3,483	—	—	3,483
	Other real estate owned and repossessed assets	682		—	—	682
	Total nonrecurring fair value measurements	$	4,165	—	—	4,165
December 31, 2015
Recurring fair value measurements:
	Investment securities available-for-sale:
	U.S. Treasury notes	$	72,846	72,846	—	—
	U.S. Agency notes	139,889		—	139,889	—
	U.S. Agency mortgage-backed securities	29,378		—	29,378	—
	Certificates of deposit with other banks	249		—	249	—
	Municipal securities:
	Non-taxable	105,479		—	105,479	—
	Taxable	26,941		—	26,941	—
	Mutual funds	1,018		18	1,000	—
	Mutual funds measured at net asset value (a)	1,448
	Trust preferred securities	50		50	—	—
	Equity securities	680		680	—	—
	Total recurring fair value measurements	$	377,978	73,594	302,936	—
Nonrecurring fair value measurements:
	Impaired loans	$	4,722	—	—	4,722
	Other real estate owned and repossessed assets	846		—	—	846
	Total nonrecurring fair value measurements	$	5,568	—	—	5,568
(a)	In accordance with Subtopic 820-10, certain investments that are measured at fair value using the net asset value per share practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Consolidated Condensed Balance Sheets.

The following table presents quantitative information about unobservable inputs used in nonrecurring level 3 fair value measurements at June 30, 2016 and December 31, 2015 (dollars in thousands):

					Range
	Fair Value		Valuation Technique	Unobservable Inputs	High		Low		Weighted Average
June 30, 2016
Impaired loans	$	3,483	Estimated sales price	Adjustments for comparable properties, discounts to reflect current market conditions	Not applicable
			Discounted cash flows	Discount rate	8.25	%	4.44	%	5.49	%
Other real estate owned	682		Estimated sales price	Adjustments for comparable properties, discounts to reflect current market conditions	Not applicable
December 31, 2015
Impaired loans	$	4,722	Estimated sales price	Adjustments for comparable properties, discounts to reflect current market conditions	Not applicable
			Discounted cash flows	Discount rate	11.00	%	4.00	%	5.27	%
Other real estate owned	846		Estimated sales price	Adjustments for comparable properties, discounts to reflect current market conditions	Not applicable

Carrying amounts and estimated fair values of financial instruments as of June 30, 2016 and December 31, 2015 are as follows (in thousands):

				Fair Value Measurements at the End of the Reporting Period Using
	Carrying Amount		Fair Value	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
June 30, 2016
FINANCIAL ASSETS:
Cash and cash equivalents	$	19,007	19,007	19,007	—	—
Investment securities, held-to-maturity	39,447		40,282	—	—	40,282
Federal Reserve Bank stock	2,732		2,732	2,732	—	—
Federal Home Loan Bank stock	3,638		3,638	3,638	—	—
Loans, net	797,092		792,749	—	—	792,749
Accrued interest receivable	3,514		3,514	168	1,186	2,160
FINANCIAL LIABILITIES:
Deposits	1,124,698		1,125,291	908,910	216,381	—
Short-term borrowings	30,541		30,541	30,541	—	—
Long-term debt	726		749	—	749	—
Accrued interest payable	296		296	15	281	—
December 31, 2015
FINANCIAL ASSETS:
Cash and cash equivalents	$	14,987	14,987	14,987	—	—
Investment securities, held-to-maturity	22,633		22,630	—	—	22,630
Federal Reserve Bank stock	2,732		2,732	2,732	—	—
Federal Home Loan Bank stock	3,638		3,638	3,638	—	—
Loans, net	767,809		761,388	—	—	761,388
Accrued interest receivable	3,380		3,380	208	1,280	1,892
FINANCIAL LIABILITIES:
Deposits	1,087,160		1,087,914	869,940	217,974	—
Short-term borrowings	37,387		37,387	37,387	—	—
Long-term debt	5,947		6,290	—	6,290	—
Accrued interest payable	345		345	16	329	—

The fair values of off-balance-sheet financial instruments at June 30, 2016 and December 31, 2015 were not material.

Fair values of financial instruments are based on various assumptions, including the discount rate and estimates of future cash flows. Therefore, the fair values presented may not represent amounts that could be realized in actual transactions.  In addition, because the required disclosures exclude certain financial instruments and all nonfinancial instruments, any aggregation of the fair value amounts presented would not represent the underlying value of LCNB.  The following methods and assumptions were used to estimate the fair value of certain financial instruments:

Cash and cash equivalents

The carrying amounts presented are deemed to approximate fair value.

Investment securities, held-to-maturity

Fair values for investment securities, held-to-maturity are based on quoted market prices for similar securities and/or discounted cash flow analysis or other methods.  

Federal Home Loan Bank stock and Federal Reserve Bank stock

The carrying value of Federal Home Loan Bank and Federal Reserve Bank stock approximates fair value based on the respective redemptive provisions.

Loans

Fair value is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities, incorporating assumptions of current and projected prepayment speeds.  These current rates approximate market rates.

Deposits

The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date.  The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities, which approximates market rates.

Borrowings

The carrying amounts of federal funds purchased, repurchase agreements, and U.S. Treasury demand note borrowings are deemed to approximate fair value of short-term borrowings.  For long-term debt, fair values are estimated based on the discounted value of expected net cash flows using current interest rates.

Accrued interest receivable and Accrued interest payable

Carrying amount approximates fair value and is aligned with the underlying assets or liabilities.

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Recent Accounting Pronouncements

6 Months Ended

Jun. 30, 2016

New Accounting Pronouncements and Changes in Accounting Principles [Abstract]

Recent Accounting Pronouncements

Recent Accounting Pronouncements

From time to time the Financial Accounting Standards Board issues an Accounting Standards Update ("ASU") to communicate changes to Generally Accepted Accounting Principles. 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 operations:

ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)"

ASU No. 2014-09 was issued in May 2014 and supersedes most current revenue recognition guidance for contracts to transfer goods or services or other nonfinancial assets. Lease contracts, insurance contracts, and most financial instruments are not included in the scope of this update. ASU No. 2014-09 provides that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance enumerates five steps that entities should follow in achieving this core principle. Additional disclosures providing information about contracts with customers are required. As extended by ASU No. 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date," ASU No. 2014-09 is effective for public companies for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Transitional guidance is included in the update. Earlier adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. Since LCNB's products are substantially financial in nature, adoption of ASU No. 2014-09 is not expected to have a material impact on LCNB's results of operations or financial position.

ASU No. 2014-15, "Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern"

ASU No. 2014-15 was issued in August 2014 and requires management to evaluate for each annual and interim reporting period whether it is probable that the entity will not be able to meet its obligations as they become due within one year after the date that financial statements are issued (or are available to be issued, where applicable). Certain disclosures, as described in the update, are required if management identifies substantial doubt about the entity's ability to continue as a going concern. ASU No. 2014-15 will take effect in the annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early application is permitted. Adoption of ASU No. 2014-15 is not expected to have a material impact on LCNB's results of operations or financial position.

ASU No. 2016-01, "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities"

ASU No. 2016-01 was issued in January 2016 and applies to all entities that hold financial assets or owe financial liabilities. It makes targeted changes to generally accepted accounting principles for public companies as follows:

1. Requires most equity investments to be measured at fair value with changes in fair value recognized in net income.

2. Simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value.

3. Eliminates the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet.

4. Requires use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes.

5. Requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments.

6. Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements.

7. Clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets.

For public business entities, the new guidance is effective for annual reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2017. Adoption of ASU No. 2016-01 is not expected to have a material impact on LCNB's results of operations or financial position.

ASU No. 2016-02, "Leases (Topic 842)"

ASU No. 2016-02 was issued in February 2016 and requires a lessee to recognize in the statement of financial position a liability to make lease payments ("the lease liability") and a right-of-use asset representing its right to use the underlying asset for the lease term, initially measured at the present value of the lease payments. When measuring assets and liabilities arising from a lease, the lessee should include payments to be made in optional periods only if the lessee is reasonably certain, as defined, to exercise an option to the lease or not to exercise an option to terminate the lease. Optional payments to purchase the underlying asset should be included if the lessee is reasonably certain it will exercise the purchase option. Most variable lease payments should be excluded except for those that depend on an index or a rate or are in substance fixed payments.

A lessee shall classify a lease as a finance lease if it meets any of five listed criteria:

1. The lease transfers ownership of the underlying asset to the lessee by the end of the lease term.

2. The lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise.

3. The lease term is for the major part of the remaining economic life of the underlying asset.

4. The present value of the sum of the lease payments and any residual value guaranteed by the lessee equals or exceeds substantially all of the fair value of the underlying asset.

5. The underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term.

For finance leases, a lessee shall recognize in the statement of comprehensive income interest on the lease liability separately from amortization of the right-of-use asset. Amortization of the right-of-use asset shall be on a straight-line basis, unless another basis is more representative of the pattern in which the lessee expects to consume the right-of-use asset’s future economic benefits. If the lease does not meet any of the five criteria, the lessee shall classify it as an operating lease and shall recognize a single lease cost on a straight-line basis over the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term.

The amendments in this update are to be applied using a modified retrospective approach, as defined, and are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018. Early application is permitted. LCNB management is currently evaluating the financial statement impact of adopting the new guidance.

ASU No. 2016-04, "Liabilities - Extinguishments of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value Products (a consensus of the FASB Emerging Issues Task Force)"

ASU No. 2016-04 was issued in March 2016 and determines that liabilities related to the sale of certain prepaid stored-value products (such as prepaid gift cards, prepaid telecommunication cards, and traveler's checks) are financial liabilities. The amendments in this update provide a narrow scope exception to the guidance in Subtopic 405-20 to require that breakage for these liabilities be accounted for consistent with breakage guidance in Topic 606, "Revenue from Contracts with Customers." The amendments in ASU No. 2016-04 are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. LCNB does not currently sell prepaid stored-value products and adoption of ASU No. 2016-04 is not expected to have an impact on LCNB's results of operations or financial position.

ASU No. 2016-05, "Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships (a consensus of the Emerging Issues Task Force)"

ASU No. 2016-05 was issued in March 2016 and applies to reporting entities for which there is a change in a counterparty to a derivative instrument that has been designated a hedging instrument under Topic 815, "Derivatives and Hedging." The amendments in this update clarify that a change in a counterparty to such a derivative instrument does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria under applicable guidance continue to be met. The amendments in ASU No. 2016-05 are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2016. LCNB does not currently have any investments in derivative instruments that have been designated as hedging instruments and adoption of ASU No. 2016-05 is not expected to have an impact on LCNB's results of operations or financial position.

ASU No. 2016-06 , "Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments (a consensus of the Emerging Issues Task Force)"

ASU No. 2016-06 was issued in March 2016 and clarifies what steps are required when assessing whether the economic characteristics and risks of call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to the economic characteristics and risks of their debt hosts, which is one of the criteria for bifurcating an embedded derivative. An entity performing the assessment under the amendments in this update is required to assess the

embedded call (put) options solely in accordance with the four-step decision sequence. The four-step decision sequence requires an entity to consider whether (1) the payoff is adjusted based on changes in an index, (2) the payoff is indexed to an underlying other than interest rates or credit risk, (3) the debt involves a substantial premium or discount, and (4) the call (put) option is contingently exercisable. The amendments in ASU No. 2016-06 are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2016. LCNB does not currently have any investments in debt instruments containing such call (put) options and adoption of ASU No. 2016-06 is not expected to have an impact on LCNB's results of operations or financial position.

ASU No. 2016-07, "Investments—Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting"

ASU No. 2016-07 was issued in March 2016 and affects all entities that have an investment that becomes qualified for the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence. The amendments in this update eliminate the requirement that, when an investment qualifies for use of the equity method, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. ASU No. 2016-07 requires that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The amendments also require that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The amendments in ASU No. 2016-07 are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Earlier application is permitted. Adoption of ASU No. 2016-07 is not expected to have a material impact on LCNB's results of operations or financial position.

ASU No. 2016-08, "Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)"

ASU No. 2016-08 was issued in March 2016 and affects the guidance in ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)," which is not yet effective. When another party is involved in providing goods or services to a customer, ASU No. 2014-09 requires an entity to determine whether the nature of its promise is to provide the specified good or service itself (that is, the entity is a principal) or to arrange for that good or service to be provided by the other party (that is, the entity is an agent). The amendments in ASU No. 2016-08 are intended to improve the operability and understandability of the implementation guidance in ASU No. 2014-09 on principal versus agent considerations by offering additional guidance to be considered in making the determination. The effective date and transition requirements for the amendments in this update are the same as the effective date and transition requirements for ASU No. 2014-09. Adoption of ASU No. 2016-08 is not expected to have a material impact on LCNB's results of operation or financial position.

ASU No. 2016-09, "Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting"

ASU No. 2016-09 was issued in March 2016 and affects all entities that issue share-based payment awards to their employees. The new guidance involves several aspects of the accounting for share-based payment transactions, including income tax

consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Under ASU No. 2016-09, any excess tax benefits or tax deficiencies should be recognized as income tax expense or benefit in the income statement. Excess tax benefits are to be classified as an operating activity in the statement of cash flows. In accruing compensation cost, an entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest, as required under current guidance, or account for forfeitures when they occur. For an award to qualify for equity classification, an entity cannot partially settle the award in excess of the employer's maximum statutory withholding requirements. Such cash paid by an employer when directly withholding shares for tax withholding purposes should be classified as a financing activity in the statement of cash flows. The amendments in ASU No. 2016-09 are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. Adoption of ASU No. 2016-07 is not expected to have a material impact on LCNB's results of operations or financial position.

ASU No. 2016-10, "Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing"

ASU No. 2016-10 was issued in April 2016 and affects the guidance in ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)," which is not yet effective. ASU No. 2016-10 clarifies the following two aspects of Topic 606:

1. evaluating whether promised goods and services are separately identifiable, and

2. determining whether an entity's promise to grant a license provides a customer with either a right to use the entity's intellectual property, which is satisfied at a point in time, or a right to access the entity's intellectual property, which is satisfied over time.

The effective date and transition requirements for the amendments in this update are the same as the effective date and transition requirements for ASU No. 2014-09. Adoption of ASU No. 2016-10 is not expected to have a material impact on LCNB's results of operation or financial position.

ASU No. 2016-12, "Revenue from Contracts with Customers (Topic 606): Narrow Scope Improvements and Practical Expedients"

ASU No. 2016-12 was issued in May 2016 and affects the guidance in ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)," which is not yet effective. The amendments clarify the assessment of the likelihood that revenue will be collected from a contract, the guidance for presenting sales taxes and similar taxes, the timing for measuring customer payments that are not in cash, and disclosure requirements by firms using the retrospective method of adoption. The amendments provide a practical expedient for recognizing revenue from contracts that have been modified prior to the transition period to the new standard. ASU No. 2016-12 also says a contract should be considered complete if all, or substantially all, of its revenue has been collected prior to making the transition to the new standard. The effective date and transition requirements for the amendments in this update are the same as the effective date and transition requirements for ASU No. 2014-09. Adoption of ASU No. 2016-12 is not expected to have a material impact on LCNB's results of operation or financial position.

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 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 available-for-sale debt securities 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 available-for-sale debt securities 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 available-for-sale debt securities 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.

ASU No. 2016-13 will take effect for U.S. Securities and Exchange Commission (SEC) filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early application will be permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. LCNB management is currently evaluating the financial statement impact of adopting the new guidance.

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Recent Accounting Pronouncements (Policies)

6 Months Ended

Jun. 30, 2016

New Accounting Pronouncements and Changes in Accounting Principles [Abstract]

Recent Accounting Pronouncements

Recent Accounting Pronouncements

From time to time the Financial Accounting Standards Board issues an Accounting Standards Update ("ASU") to communicate changes to Generally Accepted Accounting Principles. 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 operations:

ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)"

ASU No. 2014-09 was issued in May 2014 and supersedes most current revenue recognition guidance for contracts to transfer goods or services or other nonfinancial assets. Lease contracts, insurance contracts, and most financial instruments are not included in the scope of this update. ASU No. 2014-09 provides that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance enumerates five steps that entities should follow in achieving this core principle. Additional disclosures providing information about contracts with customers are required. As extended by ASU No. 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date," ASU No. 2014-09 is effective for public companies for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Transitional guidance is included in the update. Earlier adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. Since LCNB's products are substantially financial in nature, adoption of ASU No. 2014-09 is not expected to have a material impact on LCNB's results of operations or financial position.

ASU No. 2014-15, "Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern"

ASU No. 2014-15 was issued in August 2014 and requires management to evaluate for each annual and interim reporting period whether it is probable that the entity will not be able to meet its obligations as they become due within one year after the date that financial statements are issued (or are available to be issued, where applicable). Certain disclosures, as described in the update, are required if management identifies substantial doubt about the entity's ability to continue as a going concern. ASU No. 2014-15 will take effect in the annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early application is permitted. Adoption of ASU No. 2014-15 is not expected to have a material impact on LCNB's results of operations or financial position.

ASU No. 2016-01, "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities"

ASU No. 2016-01 was issued in January 2016 and applies to all entities that hold financial assets or owe financial liabilities. It makes targeted changes to generally accepted accounting principles for public companies as follows:

1. Requires most equity investments to be measured at fair value with changes in fair value recognized in net income.

2. Simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value.

3. Eliminates the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet.

4. Requires use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes.

5. Requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments.

6. Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements.

7. Clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets.

For public business entities, the new guidance is effective for annual reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2017. Adoption of ASU No. 2016-01 is not expected to have a material impact on LCNB's results of operations or financial position.

ASU No. 2016-02, "Leases (Topic 842)"

ASU No. 2016-02 was issued in February 2016 and requires a lessee to recognize in the statement of financial position a liability to make lease payments ("the lease liability") and a right-of-use asset representing its right to use the underlying asset for the lease term, initially measured at the present value of the lease payments. When measuring assets and liabilities arising from a lease, the lessee should include payments to be made in optional periods only if the lessee is reasonably certain, as defined, to exercise an option to the lease or not to exercise an option to terminate the lease. Optional payments to purchase the underlying asset should be included if the lessee is reasonably certain it will exercise the purchase option. Most variable lease payments should be excluded except for those that depend on an index or a rate or are in substance fixed payments.

A lessee shall classify a lease as a finance lease if it meets any of five listed criteria:

1. The lease transfers ownership of the underlying asset to the lessee by the end of the lease term.

2. The lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise.

3. The lease term is for the major part of the remaining economic life of the underlying asset.

4. The present value of the sum of the lease payments and any residual value guaranteed by the lessee equals or exceeds substantially all of the fair value of the underlying asset.

5. The underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term.

For finance leases, a lessee shall recognize in the statement of comprehensive income interest on the lease liability separately from amortization of the right-of-use asset. Amortization of the right-of-use asset shall be on a straight-line basis, unless another basis is more representative of the pattern in which the lessee expects to consume the right-of-use asset’s future economic benefits. If the lease does not meet any of the five criteria, the lessee shall classify it as an operating lease and shall recognize a single lease cost on a straight-line basis over the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term.

The amendments in this update are to be applied using a modified retrospective approach, as defined, and are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018. Early application is permitted. LCNB management is currently evaluating the financial statement impact of adopting the new guidance.

ASU No. 2016-04, "Liabilities - Extinguishments of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value Products (a consensus of the FASB Emerging Issues Task Force)"

ASU No. 2016-04 was issued in March 2016 and determines that liabilities related to the sale of certain prepaid stored-value products (such as prepaid gift cards, prepaid telecommunication cards, and traveler's checks) are financial liabilities. The amendments in this update provide a narrow scope exception to the guidance in Subtopic 405-20 to require that breakage for these liabilities be accounted for consistent with breakage guidance in Topic 606, "Revenue from Contracts with Customers." The amendments in ASU No. 2016-04 are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. LCNB does not currently sell prepaid stored-value products and adoption of ASU No. 2016-04 is not expected to have an impact on LCNB's results of operations or financial position.

ASU No. 2016-05, "Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships (a consensus of the Emerging Issues Task Force)"

ASU No. 2016-05 was issued in March 2016 and applies to reporting entities for which there is a change in a counterparty to a derivative instrument that has been designated a hedging instrument under Topic 815, "Derivatives and Hedging." The amendments in this update clarify that a change in a counterparty to such a derivative instrument does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria under applicable guidance continue to be met. The amendments in ASU No. 2016-05 are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2016. LCNB does not currently have any investments in derivative instruments that have been designated as hedging instruments and adoption of ASU No. 2016-05 is not expected to have an impact on LCNB's results of operations or financial position.

ASU No. 2016-06 , "Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments (a consensus of the Emerging Issues Task Force)"

ASU No. 2016-06 was issued in March 2016 and clarifies what steps are required when assessing whether the economic characteristics and risks of call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to the economic characteristics and risks of their debt hosts, which is one of the criteria for bifurcating an embedded derivative. An entity performing the assessment under the amendments in this update is required to assess the

embedded call (put) options solely in accordance with the four-step decision sequence. The four-step decision sequence requires an entity to consider whether (1) the payoff is adjusted based on changes in an index, (2) the payoff is indexed to an underlying other than interest rates or credit risk, (3) the debt involves a substantial premium or discount, and (4) the call (put) option is contingently exercisable. The amendments in ASU No. 2016-06 are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2016. LCNB does not currently have any investments in debt instruments containing such call (put) options and adoption of ASU No. 2016-06 is not expected to have an impact on LCNB's results of operations or financial position.

ASU No. 2016-07, "Investments—Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting"

ASU No. 2016-07 was issued in March 2016 and affects all entities that have an investment that becomes qualified for the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence. The amendments in this update eliminate the requirement that, when an investment qualifies for use of the equity method, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. ASU No. 2016-07 requires that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The amendments also require that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The amendments in ASU No. 2016-07 are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Earlier application is permitted. Adoption of ASU No. 2016-07 is not expected to have a material impact on LCNB's results of operations or financial position.

ASU No. 2016-08, "Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)"

ASU No. 2016-08 was issued in March 2016 and affects the guidance in ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)," which is not yet effective. When another party is involved in providing goods or services to a customer, ASU No. 2014-09 requires an entity to determine whether the nature of its promise is to provide the specified good or service itself (that is, the entity is a principal) or to arrange for that good or service to be provided by the other party (that is, the entity is an agent). The amendments in ASU No. 2016-08 are intended to improve the operability and understandability of the implementation guidance in ASU No. 2014-09 on principal versus agent considerations by offering additional guidance to be considered in making the determination. The effective date and transition requirements for the amendments in this update are the same as the effective date and transition requirements for ASU No. 2014-09. Adoption of ASU No. 2016-08 is not expected to have a material impact on LCNB's results of operation or financial position.

ASU No. 2016-09, "Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting"

ASU No. 2016-09 was issued in March 2016 and affects all entities that issue share-based payment awards to their employees. The new guidance involves several aspects of the accounting for share-based payment transactions, including income tax

consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Under ASU No. 2016-09, any excess tax benefits or tax deficiencies should be recognized as income tax expense or benefit in the income statement. Excess tax benefits are to be classified as an operating activity in the statement of cash flows. In accruing compensation cost, an entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest, as required under current guidance, or account for forfeitures when they occur. For an award to qualify for equity classification, an entity cannot partially settle the award in excess of the employer's maximum statutory withholding requirements. Such cash paid by an employer when directly withholding shares for tax withholding purposes should be classified as a financing activity in the statement of cash flows. The amendments in ASU No. 2016-09 are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. Adoption of ASU No. 2016-07 is not expected to have a material impact on LCNB's results of operations or financial position.

ASU No. 2016-10, "Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing"

ASU No. 2016-10 was issued in April 2016 and affects the guidance in ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)," which is not yet effective. ASU No. 2016-10 clarifies the following two aspects of Topic 606:

1. evaluating whether promised goods and services are separately identifiable, and

2. determining whether an entity's promise to grant a license provides a customer with either a right to use the entity's intellectual property, which is satisfied at a point in time, or a right to access the entity's intellectual property, which is satisfied over time.

The effective date and transition requirements for the amendments in this update are the same as the effective date and transition requirements for ASU No. 2014-09. Adoption of ASU No. 2016-10 is not expected to have a material impact on LCNB's results of operation or financial position.

ASU No. 2016-12, "Revenue from Contracts with Customers (Topic 606): Narrow Scope Improvements and Practical Expedients"

ASU No. 2016-12 was issued in May 2016 and affects the guidance in ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)," which is not yet effective. The amendments clarify the assessment of the likelihood that revenue will be collected from a contract, the guidance for presenting sales taxes and similar taxes, the timing for measuring customer payments that are not in cash, and disclosure requirements by firms using the retrospective method of adoption. The amendments provide a practical expedient for recognizing revenue from contracts that have been modified prior to the transition period to the new standard. ASU No. 2016-12 also says a contract should be considered complete if all, or substantially all, of its revenue has been collected prior to making the transition to the new standard. The effective date and transition requirements for the amendments in this update are the same as the effective date and transition requirements for ASU No. 2014-09. Adoption of ASU No. 2016-12 is not expected to have a material impact on LCNB's results of operation or financial position.

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 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 available-for-sale debt securities 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 available-for-sale debt securities 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 available-for-sale debt securities 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.

ASU No. 2016-13 will take effect for U.S. Securities and Exchange Commission (SEC) filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early application will be permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. LCNB management is currently evaluating the financial statement impact of adopting the new guidance.

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Acquisitions (Tables)

6 Months Ended

Jun. 30, 2016

Business Combinations [Abstract]

Fair Values of Assets Acquired, Liabilities Assumed, and Consideration Paid

The merger with BNB was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration paid were recorded at their estimated fair values as of the merger date, as summarized in the following table (in thousands):

Consideration Paid:
Common shares issued	$	9,063
Cash paid to shareholder(s)	4,403
Total consideration paid	13,466
Identifiable Assets Acquired:
Cash and cash equivalents	13,396
Investment securities	58,239
Federal Reserve Bank stock	130
Loans	34,661
Premises and equipment	2,311
Core deposit intangible	1,418
Other assets	532
Total identifiable assets acquired	110,687
Liabilities Assumed:
Deposits	99,133
Deferred income taxes	576
Other liabilities	57
Total liabilities assumed	99,766
Total Identifiable Net Assets Acquired	10,921
Goodwill resulting from merger	$	2,545

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Investment Securities (Tables)

6 Months Ended

Jun. 30, 2016

Investments, Debt and Equity Securities [Abstract]

Amortized Cost and Fair Value of Available-for-Sale Investment Securities

The amortized cost and estimated fair value of investment securities at June 30, 2016 and December 31, 2015 are summarized as follows (in thousands):

	Amortized Cost		Unrealized Gains		Unrealized Losses	Fair Value
June 30, 2016
Available-for-Sale:
U.S. Treasury notes	$	52,567	1,414		—	53,981
U.S. Agency notes	113,554		1,784		—	115,338
U.S. Agency mortgage-backed securities	47,701		592		17	48,276
Certificates of deposit	248		—		—	248
Municipal securities:
Non-taxable	108,842		2,397		6	111,233
Taxable	20,507		721		2	21,226
Mutual funds	2,508		8		17	2,499
Trust preferred securities	49		—		—	49
Equity securities	633		48		3	678
	$	346,609	$	6,964	45	353,528
Held-to-Maturity:
Municipal securities:
Non-taxable	30,084		796		29	30,851
Taxable	9,363		68		—	9,431
	$	39,447	864		29	40,282
December 31, 2015
Available-for-Sale:
U.S. Treasury notes	$	72,672	309		135	72,846
U.S. Agency notes	140,876		164		1,151	139,889
U.S. Agency mortgage-backed securities	29,608		174		404	29,378
Certificates of deposit	248		1		—	249
Municipal securities:
Non-taxable	103,900		1,713		134	105,479
Taxable	26,738		337		134	26,941
Mutual funds	2,517		—		51	2,466
Trust preferred securities	49		1		—	50
Equity securities	659		40		19	680
	$	377,267	2,739		2,028	377,978
Held-to-Maturity:
Municipal securities:
Non-taxable	22,233		95		97	22,231
Taxable	400		—		1	399
	$	22,633	95		98	22,630

Securities in a Continuous Loss Position

Information concerning investment securities with gross unrealized losses at June 30, 2016 and December 31, 2015, aggregated by length of time that individual securities have been in a continuous loss position, is as follows (dollars in thousands):

	Less than Twelve Months			Twelve Months or Greater
	Fair Value		Unrealized Losses	Fair Value		Unrealized Losses
June 30, 2016
Available-for-Sale:
U.S. Treasury notes	$	—	—	$	—	—
U.S. Agency notes	—		—	—		—
U.S. Agency mortgage-backed securities	—		—	3,909		17
Municipal securities:
Non-taxable	—		—	2,770		6
Taxable	1,005		—	451		2
Mutual funds	—		—	263		17
Trust preferred securities	49		—	—		—
Equity securities	68		3	—		—
	$	1,122	3	$	7,393	42
Held-to-Maturity:
Municipal securities:
Non-taxable	$	—	—	2,636		29
Taxable	—		—	—		—
	$	—	—	$	2,636	29
December 31, 2015
Available-for-Sale:
U.S. Treasury notes	$	32,854	75	$	4,846	60
U.S. Agency notes	104,053		1,000	9,869		151
U.S. Agency mortgage-backed securities	19,190		256	4,068		148
Municipal securities:
Non-taxable	13,124		74	7,037		60
Taxable	15,601		114	880		20
Mutual funds	1,215		17	268		34
Trust preferred securities	—		—	—		—
Equity securities	248		12	73		7
	$	186,285	1,548	$	27,041	480
Held-to-Maturity:
Municipal securities:
Non-taxable	$	832	3	$	3,426	94
Taxable	399		1	—		—
	$	1,231	4	$	3,426	94

Investments Classified by Contractual Maturity Date

Contractual maturities of investment securities at June 30, 2016 were as follows (in thousands).  Actual maturities may differ from contractual maturities when issuers have the right to call or prepay obligations.

	Available-for-Sale			Held-to-Maturity
	Amortized Cost		Fair Value	Amortized Cost	Fair Value
Due within one year	$	23,089	23,181	3,620	3,626
Due from one to five years	150,743		153,748	4,211	4,222
Due from five to ten years	121,380		124,583	11,073	11,239
Due after ten years	506		514	20,543	21,195
	295,718		302,026	39,447	40,282
U.S. Agency mortgage-backed securities	47,701		48,276	—	—
Mutual funds	2,508		2,499	—	—
Trust preferred securities	49		49	—	—
Equity securities	633		678	—	—
	$	346,609	353,528	39,447	40,282

Realized Gain (Loss) on Investments

Certain information concerning the sale of investment securities available-for-sale for the three and six months ended June 30, 2016 and 2015 was as follows (in thousands):

	Three Months Ended   June 30,			Six Months Ended   June 30,
	2016		2015	2016		2015
Proceeds from sales	$	16,100	48,953	$	36,529	54,955
Gross realized gains	300		234	671		345
Gross realized losses	21		13	21		13

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Loans (Tables)

6 Months Ended

Jun. 30, 2016

Receivables [Abstract]

Major Classifications of Loans

Major classifications of loans at June 30, 2016 and December 31, 2015 are as follows (in thousands):

	June 30, 2016		December 31, 2015
Commercial and industrial	$	45,153	45,275
Commercial, secured by real estate	455,654		419,633
Residential real estate	266,625		273,139
Consumer	18,545		18,510
Agricultural	13,605		13,479
Other loans, including deposit overdrafts	635		665
	800,217		770,701
Deferred net origination costs (fees)	248		237
	800,465		770,938
Less allowance for loan losses	3,373		3,129
Loans, net	$	797,092	767,809

Non-accrual, Past Due, and Accruing Restructured Loans

Non-accrual, past-due, and accruing restructured loans as of June 30, 2016 and December 31, 2015 are as follows (in thousands):

	June 30, 2016		December 31, 2015
Non-accrual loans:
Commercial and industrial	$	—	—
Commercial, secured by real estate	1,362		876
Residential real estate	951		799
Consumer	—		—
Agricultural	384		48
Total non-accrual loans	2,697		1,723
Past-due 90 days or more and still accruing	369		559
Total non-accrual and past-due 90 days or more and still accruing	3,066		2,282
Accruing restructured loans	13,855		13,723
Total	$	16,921	16,005

Allowance for Loan Losses and Recorded Investments in Loans

The allowance for loan losses for the three and six months ended June 30, 2016 and 2015 are as follows (in thousands):

	Commercial & Industrial			Commercial, Secured by Real Estate		Residential Real Estate		Consumer		Agricultural		Other		Total
Three Months Ended June 30, 2016
Allowance for loan losses:
Balance, beginning of period	$	247		1,868		896		81		56		2		3,150
Provision charged to expenses	74			320		(1	)	(12	)	6		9		396
Losses charged off	(49		)	(117	)	(14	)	(9	)	—		(19	)	(208	)
Recoveries	1			—		4		20		—		10		35
Balance, end of period	$	273		2,071		885		80		62		2		3,373
Six Months Ended June 30, 2016
Allowance for loan losses:
Balance, beginning of year	$	244		1,908		854		54		66		3		3,129
Provision charged to expenses	74			285		65		49		(4	)	17		486
Losses charged off	(49		)	(140	)	(42	)	(53	)	—		(42	)	(326	)
Recoveries	4			18		8		30		—		24		84
Balance, end of period	$	273		2,071		885		80		62		2		3,373
Three Months Ended June 30, 2015
Allowance for loan losses:
Balance, beginning of period	$	131		1,640		934		54		77		1		2,837
Provision charged to expenses	41			552		53		16		6		9		677
Losses charged off	(11		)	(633	)	(115	)	(18	)	(67	)	(12	)	(856	)
Recoveries	1			96		42		10		67		5		221
Balance, end of period	$	162		1,655		914		62		83		3		2,879
Six Months Ended June 30, 2015
Allowance for loan losses:
Balance, beginning of year	$	129		1,990		926		63		11		2		3,121
Provision charged to expenses	42			515		117		(13	)	72		13		746
Losses charged off	(11		)	(946	)	(197	)	(29	)	(67	)	(26	)	(1,276	)
Recoveries	2			96		68		41		67		14		288
Balance, end of period	$	162		1,655		914		62		83		3		2,879

A breakdown of the allowance for loan losses and the loan portfolio by loan segment at June 30, 2016 and December 31, 2015 are as follows (in thousands):

	Commercial & Industrial		Commercial, Secured by Real Estate	Residential Real Estate	Consumer	Agricultural	Other	Total
June 30, 2016
Allowance for loan losses:
Individually evaluated for impairment	$	6	195	90	9	—	—	300
Collectively evaluated for impairment	267		1,875	795	71	62	2	3,072
Acquired credit impaired loans	—		1	—	—	—	—	1
Balance, end of period	$	273	2,071	885	80	62	2	3,373
Loans:
Individually evaluated for impairment	$	354	12,672	1,584	47	384	—	15,041
Collectively evaluated for impairment	43,452		436,405	262,558	18,571	13,230	164	774,380
Acquired credit impaired loans	1,363		6,249	2,941	20	—	471	11,044
Balance, end of period	$	45,169	455,326	267,083	18,638	13,614	635	800,465
December 31, 2015
Allowance for loan losses:
Individually evaluated for impairment	$	9	306	48	—	—	—	363
Collectively evaluated for impairment	235		1,602	806	54	66	3	2,766
Acquired credit impaired loans	—		—	—	—	—	—	—
Balance, end of period	$	244	1,908	854	54	66	3	3,129
Loans:
Individually evaluated for impairment	$	370	12,351	1,541	56	—	—	14,318
Collectively evaluated for impairment	43,726		399,092	269,001	18,516	13,438	179	743,952
Acquired credit impaired loans	1,191		7,877	3,039	27	48	486	12,668
Balance, end of period	$	45,287	419,320	273,581	18,599	13,486	665	770,938

Analysis of the Company's Loan Portfolio by Credit Quality Indicators

A breakdown of the loan portfolio by credit quality indicators at June 30, 2016 and December 31, 2015 is as follows (in thousands):

	Pass		OAEM	Substandard	Doubtful	Total
June 30, 2016
Commercial & industrial	$	44,477	39	653	—	45,169
Commercial, secured by real estate	438,822		4,487	12,017	—	455,326
Residential real estate	261,423		998	4,662	—	267,083
Consumer	18,528		—	110	—	18,638
Agricultural	12,037		850	727	—	13,614
Other	635		—	—	—	635
Total	$	775,922	6,374	18,169	—	800,465
December 31, 2015
Commercial & industrial	$	44,596	—	691	—	45,287
Commercial, secured by real estate	397,938		9,316	12,066	—	419,320
Residential real estate	267,567		1,935	4,079	—	273,581
Consumer	18,528		—	71	—	18,599
Agricultural	12,246		850	390	—	13,486
Other	665		—	—	—	665
Total	$	741,540	12,101	17,297	—	770,938

Loan Portfolio Aging Analysis

A loan portfolio aging analysis at June 30, 2016 and December 31, 2015 is as follows (in thousands):

	30-59 Days Past Due		60-89 Days Past Due	Greater Than 90 Days Past Due	Total Past Due	Current	Total Loans Receivable	Total Loans Greater Than 90 Days and Accruing
June 30, 2016
Commercial & industrial	$	15	—	—	15	45,154	45,169	—
Commercial, secured by real estate	—		—	1,362	1,362	453,964	455,326	—
Residential real estate	590		436	1,140	2,166	264,917	267,083	335
Consumer	16		22	34	72	18,566	18,638	34
Agricultural	44		—	384	428	13,186	13,614	—
Other	97		—	—	97	538	635	—
Total	$	762	458	2,920	4,140	796,325	800,465	369
December 31, 2015
Commercial & industrial	$	—	—	—	—	45,287	45,287	—
Commercial, secured by real estate	73		81	876	1,030	418,290	419,320	—
Residential real estate	777		198	1,124	2,099	271,482	273,581	516
Consumer	62		7	43	112	18,487	18,599	43
Agricultural	—		—	—	—	13,486	13,486	—
Other	109		—	—	109	556	665	—
Total	$	1,021	286	2,043	3,350	767,588	770,938	559

Impaired Loans

Impaired loans, including acquired credit impaired loans, at June 30, 2016 and December 31, 2015 are as follows (in thousands):

	Recorded Investment		Unpaid Principal Balance	Related Allowance
June 30, 2016
With no related allowance recorded:
Commercial & industrial	$	1,362	1,635	—
Commercial, secured by real estate	16,289		18,063	—
Residential real estate	3,808		4,980	—
Consumer	33		48	—
Agricultural	384		384	—
Other	471		665	—
Total	$	22,347	25,775	—
With an allowance recorded:
Commercial & industrial	$	355	354	6
Commercial, secured by real estate	2,632		2,709	196
Residential real estate	717		855	90
Consumer	34		34	9
Agricultural	—		—	—
Other	—		—	—
Total	$	3,738	3,952	301
Total:
Commercial & industrial	$	1,717	1,989	6
Commercial, secured by real estate	18,921		20,772	196
Residential real estate	4,525		5,835	90
Consumer	67		82	9
Agricultural	384		384	—
Other	471		665	—
Total	$	26,085	29,727	301
December 31, 2015
With no related allowance recorded:
Commercial & industrial	$	1,205	1,500	—
Commercial, secured by real estate	16,345		18,335	—
Residential real estate	3,734		5,055	—
Consumer	81		109	—
Agricultural	48		151	—
Other	486		701	—
Total	$	21,899	25,851	—
With an allowance recorded:
Commercial & industrial	$	356	356	9
Commercial, secured by real estate	3,883		4,014	306
Residential real estate	846		958	48
Consumer	2		1	—
Agricultural	—		—	—
Other	—		—	—
Total	$	5,087	5,329	363
Total:
Commercial & industrial	$	1,561	1,856	9
Commercial, secured by real estate	20,228		22,349	306
Residential real estate	4,580		6,013	48
Consumer	83		110	—
Agricultural	48		151	—
Other	486		701	—
Total	$	26,986	31,180	363

The following presents information related to the average recorded investment and interest income recognized on impaired loans, including acquired credit impaired loans, for the three and six months ended June 30, 2016 and 2015 (in thousands):

	2016			2015
	Average Recorded Investment		Interest Income Recognized	Average Recorded Investment	Interest Income Recognized
Three Months Ended June 30,
With no related allowance recorded:
Commercial & industrial	$	964	26	1,609	60
Commercial, secured by real estate	17,292		278	19,259	742
Residential real estate	3,855		123	4,175	138
Consumer	40		8	93	3
Agricultural	423		123	110	35
Other	495		20	516	20
Total	$	23,069	578	25,762	998
With an allowance recorded:
Commercial & industrial	$	358	5	389	6
Commercial, secured by real estate	2,651		20	3,746	29
Residential real estate	780		8	884	10
Consumer	34		1	18	—
Agricultural	—		—	—	—
Other	—		—	—	—
Total	$	3,823	34	5,037	45
Total:
Commercial & industrial	$	1,322	31	1,998	66
Commercial, secured by real estate	19,943		298	23,005	771
Residential real estate	4,635		131	5,059	148
Consumer	74		9	111	3
Agricultural	423		123	110	35
Other	495		20	516	20
Total	$	26,892	612	30,799	1,043
Six Months Ended June 30,
With no related allowance recorded:
Commercial & industrial	$	964	55	1,437	82
Commercial, secured by real estate	17,460		660	20,317	1,099
Residential real estate	3,823		194	4,305	221
Consumer	54		15	101	7
Agricultural	422		135	107	132
Other	495		40	515	39
Total	$	23,218	1,099	26,782	1,580
With an allowance recorded:
Commercial & industrial	$	362	10	393	11
Commercial, secured by real estate	2,671		42	3,694	56
Residential real estate	760		16	862	20
Consumer	34		2	18	1
Agricultural	—		—	—	—
Other	—		—	—	—
Total	$	3,827	70	4,967	88
Total:
Commercial & industrial	$	1,326	65	1,830	93
Commercial, secured by real estate	20,131		702	24,011	1,155
Residential real estate	4,583		210	5,167	241
Consumer	88		17	119	8
Agricultural	422		135	107	132
Other	495		40	515	39
Total	$	27,045	1,169	31,749	1,668

Troubled Debt Restructurings

Loan modifications that were classified as troubled debt restructurings during the three and six months ended June 30, 2016 and 2015 are as follows (dollars in thousands):

	2016				2015
	Number of Loans	Pre-Modification Recorded Balance		Post-Modification Recorded Balance	Number of Loans	Pre-Modification Recorded Balance		Post-Modification Recorded Balance
Three Months Ended June 30,
Commercial & industrial	—	$	—	—	1	$	72	74
Commercial, secured by real estate	—	—		—	—	—		—
Residential real estate	1	27		27	1	50		50
Consumer	1	10		10	—	—		—
Total	2	$	37	37	2	$	122	124
Six Months Ended June 30,
Commercial & industrial	—	$	—	—	1	$	72	74
Commercial, secured by real estate	1	$	299	372	—	—		—
Residential real estate	2	45		45	4	137		137
Consumer	2	27		27	—	—		—
Total	5	$	371	444	5	$	209	211

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Acquired Credit Impaired Loans (Tables)

6 Months Ended

Jun. 30, 2016

Receivables [Abstract]

Schedule Of Carrying Values Of Certain Loans Acquired In A Transfer Not Accounted For As Debt Securities

The following table provides at June 30, 2016 and December 31, 2015 the major classifications of acquired credit impaired loans that are accounted for in accordance with FASB ASC 310-30 (in thousands):

	June 30, 2016		December 31, 2015
Commercial & industrial	$	1,363	1,191
Commercial, secured by real estate	6,249		7,877
Residential real estate	2,941		3,039
Consumer	20		27
Agricultural	—		48
Other loans, including deposit overdrafts	471		486
	11,044		12,668
Less allowance for loan losses	1		—
Loans, net	$	11,043	12,668

Outstanding and related carrying amount for acquired impaired loans

The following table provides the outstanding balance and related carrying amount for acquired credit impaired loans at the dates indicated (in thousands):

	June 30, 2016		December 31, 2015
Outstanding balance	$	14,369	16,507
Carrying amount	11,043		12,668

Accretable discount related to acquired impaired loans

Activity during the six months ended June 30, 2016 and 2015 for the accretable discount related to acquired credit impaired loans is as follows (in thousands):

	2016			2015
Accretable discount at beginning of year	$	1,503		2,674
Accretable discount acquired during period	—			413
Reclass from nonaccretable discount to accretable discount	307			943
Less disposals	(3		)	(857	)
Less accretion	(439		)	(1,404	)
Accretable discount at end of period	$	1,368		1,769

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Other Real Estate Owned (Tables)

6 Months Ended

Jun. 30, 2016

Real Estate [Abstract]

Changes in Other Real Estate Owned

Changes in other real estate owned are as follows (in thousands):

	Six Months Ended June 30,
	2016			2015
Balance, beginning of year	$	846		1,370
Additions	182			99
Reductions due to sales	—			(105	)
Reductions due to valuation write downs	(346		)	—
Balance, end of period	$	682		1,364

Components of Other Real Estate Owned

Other real estate owned at June 30, 2016 and December 31, 2015 consisted of (dollars in thousands):

	June 30, 2016		December 31, 2015
Commercial real estate	$	682	$	846
Residential real estate	—		—
	$	682	$	846

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Affordable Housing Tax Credit Limited Partnership (Tables)

6 Months Ended

Jun. 30, 2016

Equity Method Investments and Joint Ventures [Abstract]

Activity in Affordable Housing Program Obligation

The following table presents the balances of LCNB's affordable housing tax credit investment and related unfunded commitment at June 30, 2016 and December 31, 2015 (in thousands):

	June 30, 2016		December 31, 2015
Affordable housing tax credit investment	$	1,000	1,000
Less amortization	53		12
Net affordable housing tax credit investment	$	947	988
Unfunded commitment	$	865	907

LCNB expects to fund the unfunded commitment over 9.5 years.

The following table presents other information relating to LCNB's affordable housing tax credit investment for the periods indicated (in thousands):

	Six Months ended June 30,
	2016		2015
Tax credits and other tax benefits recognized	$	55	—
Tax credit amortization expense included in provision for income taxes	41		—

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Short-Term Borrowings (Tables)

6 Months Ended

Jun. 30, 2016

Debt Disclosure [Abstract]

Short-term borrowings

Short-term borrowings at June 30, 2016 and December 31, 2015 are as follows (dollars in thousands):

	June 30, 2016				December 31, 2015
	Amount		Rate		Amount		Rate
Line of credit	$	17,310	1.00	%	$	13,187	1.00	%
FHLB short-term advance	—		—	%	10,000		0.35	%
Repurchase agreements	13,231		0.10	%	14,200		0.10	%
	$	30,541	0.61	%	$	37,387	0.48	%

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Income Taxes (Tables)

6 Months Ended

Jun. 30, 2016

Income Tax Disclosure [Abstract]

Reconciliation between Statutory Income Tax and Effective Tax Rate

A reconciliation between the statutory income tax and LCNB's effective tax rate on income from continuing operations follows:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2016		2015		2016		2015
Statutory tax rate	34.2	%	34.0	%	34.2	%	34.0	%
Increase (decrease) resulting from:
Tax exempt interest	(6.6	)%	(5.4	)%	(6.4	)%	(5.4	)%
Tax exempt income on bank owned life insurance	(1.6	)%	(1.2	)%	(1.5	)%	(1.3	)%
Other, net	—	%	0.4	%	(0.1	)%	0.4	%
Effective tax rate	26.0	%	27.8	%	26.2	%	27.7	%

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Commitments and Contingent Liabilities (Tables)

6 Months Ended

Jun. 30, 2016

Commitments and Contingencies Disclosure [Abstract]

Financial Instruments Whose Contract Amounts Represent Off-Balance-Sheet Credit Risk

Financial instruments whose contract amounts represent off-balance-sheet credit risk at June 30, 2016 and December 31, 2015 are as follows (in thousands):

	June 30, 2016		December 31, 2015
Commitments to extend credit:
Commercial loans	$	6,956	8,160
Other loans
Fixed rate	5,395		2,293
Adjustable rate	1,707		1,362
Unused lines of credit:
Fixed rate	4,584		6,378
Adjustable rate	84,678		90,153
Unused overdraft protection amounts on demand and NOW accounts	9,858		10,057
Standby letters of credit	357		457
	$	113,535	118,860

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Accumulated Other Comprehensive Income (Tables)

6 Months Ended

Jun. 30, 2016

Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract]

Schedule of Changes in Accumulated Other Comprehensive Income

Changes in accumulated other comprehensive income for the six months ended June 30, 2016 and 2015 are as follows (in thousands):

	Unrealized Gains and Losses on Available-for-Sale Securities			Changes in Pension Plan Assets and Benefit Obligations		Total
June 30, 2016
Balance at beginning of period	$	469		(233	)	236
Before reclassifications	4,526			56		4,582
Reclassifications	(429		)	—		(429	)
Balance at end of period	$	4,566		(177	)	4,389
June 30, 2015
Balance at beginning of period	$	1,126		(341	)	785
Before reclassifications	(149		)	58		(91	)
Reclassifications	(219		)	—		(219	)
Balance at end of period	$	758		(283	)	475

Schedule of Reclassifications Out of Accumulated Other Comprehensive Income

Reclassifications out of accumulated other comprehensive income during the three and six months ended June 30, 2016 and 2015 and the affected line items in the consolidated condensed statements of income are as follows (in thousands):

	Three Months Ended June 30,			Six Months Ended June 30,			Affected Line Item in the Consolidated Condensed Statements of Income
	2016		2015	2016		2015
Realized gain on sale of securities	$	279	221	$	650	332	Net gain on sales of securities
Less provision for income taxes	95		75	221		113	Provision for income taxes
Reclassification adjustment, net of taxes	$	184	146	$	429	219

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Retirement Plans (Tables)

6 Months Ended

Jun. 30, 2016

Compensation and Retirement Disclosure [Abstract]

Summary of Funding and Administrative Cost of Qualified Noncontributory Defined Benefit Retirement Plan and 401(k) Plan Charged to Salaries and Employee Benefits

Funding and administrative costs of the qualified noncontributory defined benefit retirement plan and 401(k) plan charged to pension and other employee benefits in the consolidated condensed statements of income for the three and six-month periods ended June 30, 2016 and 2015 are as follows (in thousands):

	For the Three Months Ended June 30,			For the Six Months Ended June 30,
	2016		2015	2016		2015
Qualified noncontributory defined benefit retirement plan	$	220	273	$	440	543
401(k) plan	77		90	160		177

Components of Net Periodic Pension Cost of Nonqualified Defined Benefit Retirement Plan

The components of net periodic pension cost of the nonqualified defined benefit retirement plan for the three and six months ended June 30, 2016 and 2015 are summarized as follows (in thousands):

	Three Months Ended June 30,			Six Months Ended June 30,
	2016		2015	2016		2015
Service cost	$	10	10	$	20	19
Interest cost	19		17	38		34
Amortization of unrecognized net loss	42		43	84		85
Net periodic pension cost	$	71	70	$	142	138

Amount Recognized in Accumulated Other Comprehensive Income, Net of Deferred Federal Income Taxes for Nonqualified Defined Retirement Plan

Amounts recognized in accumulated other comprehensive income, net of tax, at June 30, 2016 and December 31, 2015 for the nonqualified defined benefit retirement plan consists of (in thousands):

	June 30, 2016		December 31, 2015
Net actuarial loss	$	177	233

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Stock Based Compensation (Tables)

6 Months Ended

Jun. 30, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Summary of Stock Options Outstanding

Stock options outstanding at June 30, 2016 were as follows:

	Outstanding Stock Options				Exercisable Stock Options
Exercise Price Range	Number	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)	Number	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)
$9.00 - $10.99	17,633	$	9.00	2.6	17,633	$	9.00	2.6
$11.00 - $12.99	53,266	12.04		4.1	51,521	12.03		4.0
$17.00 - $18.99	5,160	17.88		0.6	5,160	17.88		0.6
	76,059	11.73		3.5	74,314	11.71		3.4

Summary of Stock Option Activity

The following table summarizes stock option activity for the periods indicated:

	2016				2015
	Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price
Outstanding, January 1,	83,861		$	12.39	99,810		$	12.16
Granted	—		—		—		—
Exercised	—		—		(13,449	)	11.31
Expired	(7,802	)	18.76		(2,500	)	9.00
Outstanding, June 30,	76,059		11.73		83,861		12.39
Exercisable, June 30,	74,314		11.71		75,072		12.40

Summary of Restricted Stock Awards Activity

Restricted stock awards granted under the 2015 Plan were as follows:

	2016				2015
	Shares		Weighted Average Grant Date Fair Value		Shares	Weighted Average Grant Date Fair Value
Outstanding, January 1,	16,038		$	15.47	—	$	—
Granted	—		—		—	—
Vested	(5,255	)	15.47		—	—
Forfeited	—		—		—	—
Outstanding, June 30,	10,783		$	15.47	—	$	—

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Earnings Per Common Share (Tables)

6 Months Ended

Jun. 30, 2016

Earnings Per Share [Abstract]

Computations of Earnings per Common Share

The computations are as follows for the three and six months ended June 30, 2016 and 2015 (dollars in thousands, except share and per share data):

	For the Three Months Ended June 30,			For the Six Months Ended June 30,
	2016		2015	2016		2015
Net income	$	2,968	3,123	$	5,932	5,957
Weighted average number of shares outstanding used in the calculation of basic earnings per common share	9,922,024		9,694,732	9,919,070		9,504,739
Add dilutive effect of:
Stock options	18,299		18,955	17,767		17,629
Stock warrants	—		91,041	32,465		86,682
Restricted shares	3,474		—	2,598		—
Adjusted weighted average number of shares outstanding used in the calculation of diluted earnings per common share	9,943,797		9,804,728	9,971,900		9,609,050
Earnings per common share:
Basic	$	0.30	0.33	$	0.60	0.63
Diluted	0.29		0.32	0.59		0.62

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Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2016

Fair Value Disclosures [Abstract]

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 June 30, 2016 and December 31, 2015 (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)
June 30, 2016
Recurring fair value measurements:
	Investment securities available-for-sale:
	U.S. Treasury notes	$	53,981	53,981	—	—
	U.S. Agency notes	115,338		—	115,338	—
	U.S. Agency mortgage-backed securities	48,276		—	48,276	—
	Certificates of deposit with other banks	248		—	248	—
	Municipal securities:
	Non-taxable	111,233		—	111,233	—
	Taxable	21,226		—	21,226	—
	Mutual funds	1,000		—	1,000	—
	Mutual funds measured at net asset value (a)	1,499
	Trust preferred securities	49		49	—	—
	Equity securities	678		678	—	—
	Total recurring fair value measurements	$	353,528	54,708	297,321	—
Nonrecurring fair value measurements:
	Impaired loans	$	3,483	—	—	3,483
	Other real estate owned and repossessed assets	682		—	—	682
	Total nonrecurring fair value measurements	$	4,165	—	—	4,165
December 31, 2015
Recurring fair value measurements:
	Investment securities available-for-sale:
	U.S. Treasury notes	$	72,846	72,846	—	—
	U.S. Agency notes	139,889		—	139,889	—
	U.S. Agency mortgage-backed securities	29,378		—	29,378	—
	Certificates of deposit with other banks	249		—	249	—
	Municipal securities:
	Non-taxable	105,479		—	105,479	—
	Taxable	26,941		—	26,941	—
	Mutual funds	1,018		18	1,000	—
	Mutual funds measured at net asset value (a)	1,448
	Trust preferred securities	50		50	—	—
	Equity securities	680		680	—	—
	Total recurring fair value measurements	$	377,978	73,594	302,936	—
Nonrecurring fair value measurements:
	Impaired loans	$	4,722	—	—	4,722
	Other real estate owned and repossessed assets	846		—	—	846
	Total nonrecurring fair value measurements	$	5,568	—	—	5,568
(a)	In accordance with Subtopic 820-10, certain investments that are measured at fair value using the net asset value per share practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Consolidated Condensed Balance Sheets.

Fair Value Measurements Assets and Liabilities Measured on Nonrecurring Basis, Valuation Techniques

The following table presents quantitative information about unobservable inputs used in nonrecurring level 3 fair value measurements at June 30, 2016 and December 31, 2015 (dollars in thousands):

					Range
	Fair Value		Valuation Technique	Unobservable Inputs	High		Low		Weighted Average
June 30, 2016
Impaired loans	$	3,483	Estimated sales price	Adjustments for comparable properties, discounts to reflect current market conditions	Not applicable
			Discounted cash flows	Discount rate	8.25	%	4.44	%	5.49	%
Other real estate owned	682		Estimated sales price	Adjustments for comparable properties, discounts to reflect current market conditions	Not applicable
December 31, 2015
Impaired loans	$	4,722	Estimated sales price	Adjustments for comparable properties, discounts to reflect current market conditions	Not applicable
			Discounted cash flows	Discount rate	11.00	%	4.00	%	5.27	%
Other real estate owned	846		Estimated sales price	Adjustments for comparable properties, discounts to reflect current market conditions	Not applicable

Carrying Amounts and Estimated Fair Values of Financial Instruments

Carrying amounts and estimated fair values of financial instruments as of June 30, 2016 and December 31, 2015 are as follows (in thousands):

				Fair Value Measurements at the End of the Reporting Period Using
	Carrying Amount		Fair Value	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
June 30, 2016
FINANCIAL ASSETS:
Cash and cash equivalents	$	19,007	19,007	19,007	—	—
Investment securities, held-to-maturity	39,447		40,282	—	—	40,282
Federal Reserve Bank stock	2,732		2,732	2,732	—	—
Federal Home Loan Bank stock	3,638		3,638	3,638	—	—
Loans, net	797,092		792,749	—	—	792,749
Accrued interest receivable	3,514		3,514	168	1,186	2,160
FINANCIAL LIABILITIES:
Deposits	1,124,698		1,125,291	908,910	216,381	—
Short-term borrowings	30,541		30,541	30,541	—	—
Long-term debt	726		749	—	749	—
Accrued interest payable	296		296	15	281	—
December 31, 2015
FINANCIAL ASSETS:
Cash and cash equivalents	$	14,987	14,987	14,987	—	—
Investment securities, held-to-maturity	22,633		22,630	—	—	22,630
Federal Reserve Bank stock	2,732		2,732	2,732	—	—
Federal Home Loan Bank stock	3,638		3,638	3,638	—	—
Loans, net	767,809		761,388	—	—	761,388
Accrued interest receivable	3,380		3,380	208	1,280	1,892
FINANCIAL LIABILITIES:
Deposits	1,087,160		1,087,914	869,940	217,974	—
Short-term borrowings	37,387		37,387	37,387	—	—
Long-term debt	5,947		6,290	—	6,290	—
Accrued interest payable	345		345	16	329	—

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Acquisitions (Details) $ / shares in Units, $ in Thousands		6 Months Ended
	Apr. 30, 2015 USD ($) $ / shares	Jun. 30, 2016 USD ($)	Dec. 31, 2015 USD ($)
Liabilities Assumed:
Goodwill resulting from merger		$ 30,183	$ 30,183
BNB Bancorp, Inc [Member]
Business Acquisition, Equity Interests Issued or Issuable [Line Items]
Share price (usd per share) | $ / shares	$ 15.75
Equity interest exchange ratio	2.005
Consideration Paid:
Common shares issued	$ 9,063
Cash paid to shareholder(s)	4,403
Consideration paid	13,466
Identifiable Assets Acquired:
Cash and cash equivalents	13,396
Investment securities	58,239
Federal Reserve Bank stock	130
Loans	34,661
Premises and equipment	2,311
Core deposit intangible	1,418
Other assets	532
Total identifiable assets acquired	110,687
Liabilities Assumed:
Deposits	99,133
Deferred income taxes	576
Other liabilities	57
Total liabilities assumed	99,766
Total Identifiable Net Assets Acquired	10,921
Goodwill resulting from merger	$ 2,545
Core deposit intangibles useful life		9 years

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Investment Securities, Amortized Cost and Fair Value (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Available-for-Sale:
Amortized Cost	$ 346,609	$ 377,267
Unrealized Gains	6,964	2,739
Unrealized Losses	45	2,028
Fair Value	353,528	377,978
Held-to-Maturity:
Amortized Cost	39,447	22,633
Unrealized Gains	864	95
Unrealized Losses	29	98
Fair Value	40,282	22,630
U.S. Treasury notes [Member]
Available-for-Sale:
Amortized Cost	52,567	72,672
Unrealized Gains	1,414	309
Unrealized Losses	0	135
Fair Value	53,981	72,846
U.S. Agency notes [Member]
Available-for-Sale:
Amortized Cost	113,554	140,876
Unrealized Gains	1,784	164
Unrealized Losses	0	1,151
Fair Value	115,338	139,889
U.S. Agency mortgage-backed securities [Member]
Available-for-Sale:
Amortized Cost	47,701	29,608
Unrealized Gains	592	174
Unrealized Losses	17	404
Fair Value	48,276	29,378
Held-to-Maturity:
Fair Value	0
Certificates of deposit [Member]
Available-for-Sale:
Amortized Cost	248	248
Unrealized Gains	0	1
Unrealized Losses	0	0
Fair Value	248	249
Non-taxable Municipal securities [Member]
Available-for-Sale:
Amortized Cost	108,842	103,900
Unrealized Gains	2,397	1,713
Unrealized Losses	6	134
Fair Value	111,233	105,479
Held-to-Maturity:
Amortized Cost	30,084	22,233
Unrealized Gains	796	95
Unrealized Losses	29	97
Fair Value	30,851	22,231
Taxable Municipal securities [Member]
Available-for-Sale:
Amortized Cost	20,507	26,738
Unrealized Gains	721	337
Unrealized Losses	2	134
Fair Value	21,226	26,941
Held-to-Maturity:
Amortized Cost	9,363	400
Unrealized Gains	68	0
Unrealized Losses	0	1
Fair Value	9,431	399
Mutual funds [Member]
Available-for-Sale:
Amortized Cost	2,508	2,517
Unrealized Gains	8	0
Unrealized Losses	17	51
Fair Value	2,499	2,466
Held-to-Maturity:
Fair Value	0
Trust preferred securities [Member]
Available-for-Sale:
Amortized Cost	49	49
Unrealized Gains	0	1
Unrealized Losses	0	0
Fair Value	49	50
Held-to-Maturity:
Fair Value	0
Equity securities [Member]
Available-for-Sale:
Amortized Cost	633	659
Unrealized Gains	48	40
Unrealized Losses	3	19
Fair Value	678	$ 680
Held-to-Maturity:
Fair Value	$ 0

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Investment Securities, Continuous Unrealized Loss Position (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Available-for-Sale:
Less than 12 Months, Fair Value	$ 1,122	$ 186,285
Less than 12 Months, Unrealized Losses	3	1,548
12 Months or More, Fair Value	7,393	27,041
12 Months or More, Unrealized Losses	42	480
Held-to-Maturity:
Less than 12 Months, Fair Value	0	1,231
Less than 12 Months, Unrealized Losses	0	4
12 Months or More, Fair Value	2,636	3,426
12 Months or More, Unrealized Losses	29	94
U.S. Treasury notes [Member]
Available-for-Sale:
Less than 12 Months, Fair Value	0	32,854
Less than 12 Months, Unrealized Losses	0	75
12 Months or More, Fair Value	0	4,846
12 Months or More, Unrealized Losses	0	60
U.S. Agency notes [Member]
Available-for-Sale:
Less than 12 Months, Fair Value	0	104,053
Less than 12 Months, Unrealized Losses	0	1,000
12 Months or More, Fair Value	0	9,869
12 Months or More, Unrealized Losses	0	151
U.S. Agency mortgage-backed securities [Member]
Available-for-Sale:
Less than 12 Months, Fair Value	0	19,190
Less than 12 Months, Unrealized Losses	0	256
12 Months or More, Fair Value	3,909	4,068
12 Months or More, Unrealized Losses	17	148
Non-taxable Municipal securities [Member]
Available-for-Sale:
Less than 12 Months, Fair Value	0	13,124
Less than 12 Months, Unrealized Losses	0	74
12 Months or More, Fair Value	2,770	7,037
12 Months or More, Unrealized Losses	6	60
Held-to-Maturity:
Less than 12 Months, Fair Value	0	832
Less than 12 Months, Unrealized Losses	0	3
12 Months or More, Fair Value	2,636	3,426
12 Months or More, Unrealized Losses	29	94
Taxable Municipal securities [Member]
Available-for-Sale:
Less than 12 Months, Fair Value	1,005	15,601
Less than 12 Months, Unrealized Losses	0	114
12 Months or More, Fair Value	451	880
12 Months or More, Unrealized Losses	2	20
Held-to-Maturity:
Less than 12 Months, Fair Value	0	399
Less than 12 Months, Unrealized Losses	0	1
12 Months or More, Fair Value	0	0
12 Months or More, Unrealized Losses	0	0
Mutual funds [Member]
Available-for-Sale:
Less than 12 Months, Fair Value	0	1,215
Less than 12 Months, Unrealized Losses	0	17
12 Months or More, Fair Value	263	268
12 Months or More, Unrealized Losses	17	34
Trust preferred securities [Member]
Available-for-Sale:
Less than 12 Months, Fair Value	49	0
Less than 12 Months, Unrealized Losses	0	0
12 Months or More, Fair Value	0	0
12 Months or More, Unrealized Losses	0	0
Equity securities [Member]
Available-for-Sale:
Less than 12 Months, Fair Value	68	248
Less than 12 Months, Unrealized Losses	3	12
12 Months or More, Fair Value	0	73
12 Months or More, Unrealized Losses	$ 0	$ 7

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Investment Securities, Maturities (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Available-for-Sale, Amortized Cost
Due within one year	$ 23,089
Due from one to five years	150,743
Due from five to ten years	121,380
Due after ten years	506
Available-for-sale, amortized cost	295,718
Available-for-sale, amortized cost	346,609	$ 377,267
Available-for-Sale, Fair Value
Due within one year	23,181
Due from one to five years	153,748
Due from five to ten years	124,583
Due after ten years	514
Available-for-sale, fair value	302,026
Available-for-sale, at fair value	353,528	377,978
Held-to-Maturity, Amortized Cost
Due within one year	3,620
Due from one to five years	4,211
Due from five to ten years	11,073
Due after ten years	20,543
Amortized Cost	39,447	22,633
Held-to-maturity, amortized cost	39,447
Held-to-Maturity, Fair Value
Due within one year	3,626
Due from one to five years	4,222
Due from five to ten years	11,239
Due after ten years	21,195
Held-to-maturity, fair value	40,282	22,630
Available-for-sale securities pledged as collateral	228,901	215,952
U.S. Agency mortgage-backed securities [Member]
Available-for-Sale, Amortized Cost
Available-for-sale, amortized cost	47,701	29,608
Available-for-Sale, Fair Value
Available-for-sale, at fair value	48,276	29,378
Held-to-Maturity, Amortized Cost
Held-to-maturity, amortized cost	0
Held-to-Maturity, Fair Value
Held-to-maturity, fair value	0
Mutual funds [Member]
Available-for-Sale, Amortized Cost
Available-for-sale, amortized cost	2,508	2,517
Available-for-Sale, Fair Value
Available-for-sale, at fair value	2,499	2,466
Held-to-Maturity, Amortized Cost
Held-to-maturity, amortized cost	0
Held-to-Maturity, Fair Value
Held-to-maturity, fair value	0
Trust preferred securities [Member]
Available-for-Sale, Amortized Cost
Available-for-sale, amortized cost	49	49
Available-for-Sale, Fair Value
Available-for-sale, at fair value	49	50
Held-to-Maturity, Amortized Cost
Held-to-maturity, amortized cost	0
Held-to-Maturity, Fair Value
Held-to-maturity, fair value	0
Equity securities [Member]
Available-for-Sale, Amortized Cost
Available-for-sale, amortized cost	633	659
Available-for-Sale, Fair Value
Available-for-sale, at fair value	678	$ 680
Held-to-Maturity, Amortized Cost
Held-to-maturity, amortized cost	0
Held-to-Maturity, Fair Value
Held-to-maturity, fair value	$ 0

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Investment Securities, Sales (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Investments, Debt and Equity Securities [Abstract]
Proceeds from sales	$ 16,100	$ 48,953	$ 36,529	$ 54,955
Gross realized gains	300	234	671	345
Gross realized losses	$ 21	$ 13	$ 21	$ 13

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Loans, Major Classifications of Loans (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans, gross	$ 800,217	$ 770,701
Deferred net origination costs (fees)	248	237
Total Loans Receivable	800,465	770,938
Less allowance for loan losses	3,373	3,129
Loans, net	797,092	767,809
Commercial and Industrial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans, gross	45,153	45,275
Total Loans Receivable	45,169	45,287
Commercial, secured by real estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans, gross	455,654	419,633
Total Loans Receivable	455,326	419,320
Residential real estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans, gross	266,625	273,139
Total Loans Receivable	267,083	273,581
Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans, gross	18,545	18,510
Total Loans Receivable	18,638	18,599
Agricultural [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans, gross	13,605	13,479
Total Loans Receivable	13,614	13,486
Other loans, including deposit overdrafts [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans, gross	635	665
Total Loans Receivable	$ 635	$ 665

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Loans, Additional Information (Details) - USD ($) $ in Millions	6 Months Ended
	Jun. 30, 2016	Dec. 31, 2015
Accounts, Notes, Loans and Financing Receivable [Line Items]
Pledged financial instruments, securities for federal home loan bank	$ 225	$ 231
Commercial and industrial [Member] | Minimum [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Adjustable rate period	1 month
Commercial and industrial [Member] | Maximum [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Adjustable rate period	5 years
Commercial, secured by real estate [Member] | Minimum [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Amortization period	5 years
Balloon payments period	1 year
Adjustable rate period	1 year
Commercial, secured by real estate [Member] | Maximum [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Amortization period	25 years
Balloon payments period	10 years
Adjustable rate period	10 years
Loan to appraised value ratio	75.00%
Residential real estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Home equity line of credit draw period	5 years
Residential real estate [Member] | Minimum [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Amortization period	5 years
Adjustable rate period	1 year
Loan to appraised value ratio	80.00%
Residential real estate [Member] | Maximum [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Amortization period	30 years
Adjustable rate period	10 years
Consumer [Member] | Maximum [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Amortization period	72 months

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Loans, Past Due And Accruing Restructured (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Financing receivables, non accruals, past due, and accruing restructured loans [Line Items]
Total non-accrual loans	$ 2,697	$ 1,723
Past-due 90 days or more and still accruing	369	559
Total non-accrual and past-due 90 days or more and still accruing	3,066	2,282
Accruing restructured loans	13,855	13,723
Total	16,921	16,005
Commercial and Industrial [Member]
Financing receivables, non accruals, past due, and accruing restructured loans [Line Items]
Total non-accrual loans	0	0
Commercial Secured By Real Estate [Member]
Financing receivables, non accruals, past due, and accruing restructured loans [Line Items]
Total non-accrual loans	1,362	876
Agricultural [Member]
Financing receivables, non accruals, past due, and accruing restructured loans [Line Items]
Total non-accrual loans	384	48
Residential Real Estate [Member]
Financing receivables, non accruals, past due, and accruing restructured loans [Line Items]
Total non-accrual loans	951	799
Consumer [Member]
Financing receivables, non accruals, past due, and accruing restructured loans [Line Items]
Total non-accrual loans	$ 0	$ 0

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Loans, Allowance for Loan Losses (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Allowance for loan losses [Roll Forward]
Balance, beginning of period	$ 3,150	$ 2,837	$ 3,129	$ 3,121
Provision charged to expenses	396	677	486	746
Losses charged off	(208)	(856)	(326)	(1,276)
Recoveries	35	221	84	288
Balance, end of period	3,373	2,879	3,373	2,879
Commercial and Industrial [Member]
Allowance for loan losses [Roll Forward]
Balance, beginning of period	247	131	244	129
Provision charged to expenses	74	41	74	42
Losses charged off	(49)	(11)	(49)	(11)
Recoveries	1	1	4	2
Balance, end of period	273	162	273	162
Commercial Secured By Real Estate [Member]
Allowance for loan losses [Roll Forward]
Balance, beginning of period	1,868	1,640	1,908	1,990
Provision charged to expenses	320	552	285	515
Losses charged off	(117)	(633)	(140)	(946)
Recoveries	0	96	18	96
Balance, end of period	2,071	1,655	2,071	1,655
Residential Real Estate [Member]
Allowance for loan losses [Roll Forward]
Balance, beginning of period	896	934	854	926
Provision charged to expenses	(1)	53	65	117
Losses charged off	(14)	(115)	(42)	(197)
Recoveries	4	42	8	68
Balance, end of period	885	914	885	914
Consumer [Member]
Allowance for loan losses [Roll Forward]
Balance, beginning of period	81	54	54	63
Provision charged to expenses	(12)	16	49	(13)
Losses charged off	(9)	(18)	(53)	(29)
Recoveries	20	10	30	41
Balance, end of period	80	62	80	62
Agricultural [Member]
Allowance for loan losses [Roll Forward]
Balance, beginning of period	56	77	66	11
Provision charged to expenses	6	6	(4)	72
Losses charged off	0	(67)	0	(67)
Recoveries	0	67	0	67
Balance, end of period	62	83	62	83
Other [Member]
Allowance for loan losses [Roll Forward]
Balance, beginning of period	2	1	3	2
Provision charged to expenses	9	9	17	13
Losses charged off	(19)	(12)	(42)	(26)
Recoveries	10	5	24	14
Balance, end of period	$ 2	$ 3	$ 2	$ 3

XML

Loans, Allowance for Loan Losses and Loan Portfolio by Segment (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2014
Allowance for loan losses:
Individually evaluated for impairment	$ 300		$ 363
Collectively evaluated for impairment	3,072		2,766
Acquired credit impaired loans	1		0
Balance, end of period	3,373	$ 3,150	3,129	$ 2,879	$ 2,837	$ 3,121
Loans:
Individually evaluated for impairment	15,041		14,318
Collectively evaluated for impairment	774,380		743,952
Acquired credit impaired loans	11,043		12,668
Balance, end of period	800,465		770,938
Acquired credit impaired loans [Member]
Loans:
Acquired credit impaired loans	11,044		12,668
Commercial and Industrial [Member]
Allowance for loan losses:
Individually evaluated for impairment	6		9
Collectively evaluated for impairment	267		235
Acquired credit impaired loans	0		0
Balance, end of period	273	247	244	162	131	129
Loans:
Individually evaluated for impairment	354		370
Collectively evaluated for impairment	43,452		43,726
Balance, end of period	45,169		45,287
Commercial and Industrial [Member] | Acquired credit impaired loans [Member]
Loans:
Acquired credit impaired loans	1,363		1,191
Commercial Secured By Real Estate [Member]
Allowance for loan losses:
Individually evaluated for impairment	195		306
Collectively evaluated for impairment	1,875		1,602
Acquired credit impaired loans	1		0
Balance, end of period	2,071	1,868	1,908	1,655	1,640	1,990
Loans:
Individually evaluated for impairment	12,672		12,351
Collectively evaluated for impairment	436,405		399,092
Balance, end of period	455,326		419,320
Commercial Secured By Real Estate [Member] | Acquired credit impaired loans [Member]
Loans:
Acquired credit impaired loans	6,249		7,877
Residential Real Estate [Member]
Allowance for loan losses:
Individually evaluated for impairment	90		48
Collectively evaluated for impairment	795		806
Acquired credit impaired loans	0		0
Balance, end of period	885	896	854	914	934	926
Loans:
Individually evaluated for impairment	1,584		1,541
Collectively evaluated for impairment	262,558		269,001
Balance, end of period	267,083		273,581
Residential Real Estate [Member] | Acquired credit impaired loans [Member]
Loans:
Acquired credit impaired loans	2,941		3,039
Consumer [Member]
Allowance for loan losses:
Individually evaluated for impairment	9		0
Collectively evaluated for impairment	71		54
Acquired credit impaired loans	0		0
Balance, end of period	80	81	54	62	54	63
Loans:
Individually evaluated for impairment	47		56
Collectively evaluated for impairment	18,571		18,516
Balance, end of period	18,638		18,599
Consumer [Member] | Acquired credit impaired loans [Member]
Loans:
Acquired credit impaired loans	20		27
Agricultural [Member]
Allowance for loan losses:
Individually evaluated for impairment	0		0
Collectively evaluated for impairment	62		66
Acquired credit impaired loans	0		0
Balance, end of period	62	56	66	83	77	11
Loans:
Individually evaluated for impairment	384		0
Collectively evaluated for impairment	13,230		13,438
Balance, end of period	13,614		13,486
Agricultural [Member] | Acquired credit impaired loans [Member]
Loans:
Acquired credit impaired loans	0		48
Other [Member]
Allowance for loan losses:
Individually evaluated for impairment	0		0
Collectively evaluated for impairment	2		3
Acquired credit impaired loans	0		0
Balance, end of period	2	$ 2	3	$ 3	$ 1	$ 2
Loans:
Individually evaluated for impairment	0		0
Collectively evaluated for impairment	164		179
Balance, end of period	635		665
Other [Member] | Acquired credit impaired loans [Member]
Loans:
Acquired credit impaired loans	$ 471		$ 486

XML

Loans, Loans Portfolio by Credit Quality Indicators (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Financing Receivable, Recorded Investment [Line Items]
Loans, net of deferred origination costs (fees)	$ 800,465	$ 770,938
Commercial and industrial [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans, net of deferred origination costs (fees)	45,169	45,287
Commercial, secured by real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans, net of deferred origination costs (fees)	455,326	419,320
Residential real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans, net of deferred origination costs (fees)	267,083	273,581
Consumer [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans, net of deferred origination costs (fees)	18,638	18,599
Agricultural [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans, net of deferred origination costs (fees)	13,614	13,486
Other [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans, net of deferred origination costs (fees)	635	665
Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans, net of deferred origination costs (fees)	775,922	741,540
Pass [Member] | Commercial and industrial [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans, net of deferred origination costs (fees)	44,477	44,596
Pass [Member] | Commercial, secured by real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans, net of deferred origination costs (fees)	438,822	397,938
Pass [Member] | Residential real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans, net of deferred origination costs (fees)	261,423	267,567
Pass [Member] | Consumer [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans, net of deferred origination costs (fees)	18,528	18,528
Pass [Member] | Agricultural [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans, net of deferred origination costs (fees)	12,037	12,246
Pass [Member] | Other [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans, net of deferred origination costs (fees)	635	665
OAEM [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans, net of deferred origination costs (fees)	6,374	12,101
OAEM [Member] | Commercial and industrial [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans, net of deferred origination costs (fees)	39	0
OAEM [Member] | Commercial, secured by real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans, net of deferred origination costs (fees)	4,487	9,316
OAEM [Member] | Residential real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans, net of deferred origination costs (fees)	998	1,935
OAEM [Member] | Consumer [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans, net of deferred origination costs (fees)	0	0
OAEM [Member] | Agricultural [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans, net of deferred origination costs (fees)	850	850
OAEM [Member] | Other [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans, net of deferred origination costs (fees)	0	0
Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans, net of deferred origination costs (fees)	18,169	17,297
Substandard [Member] | Commercial and industrial [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans, net of deferred origination costs (fees)	653	691
Substandard [Member] | Commercial, secured by real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans, net of deferred origination costs (fees)	12,017	12,066
Substandard [Member] | Residential real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans, net of deferred origination costs (fees)	4,662	4,079
Substandard [Member] | Consumer [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans, net of deferred origination costs (fees)	110	71
Substandard [Member] | Agricultural [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans, net of deferred origination costs (fees)	727	390
Substandard [Member] | Other [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans, net of deferred origination costs (fees)	0	0
Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans, net of deferred origination costs (fees)	0	0
Doubtful [Member] | Commercial and industrial [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans, net of deferred origination costs (fees)	0	0
Doubtful [Member] | Commercial, secured by real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans, net of deferred origination costs (fees)	0	0
Doubtful [Member] | Residential real estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans, net of deferred origination costs (fees)	0	0
Doubtful [Member] | Consumer [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans, net of deferred origination costs (fees)	0	0
Doubtful [Member] | Agricultural [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans, net of deferred origination costs (fees)	0	0
Doubtful [Member] | Other [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans, net of deferred origination costs (fees)	$ 0	$ 0

XML

Loans, Loans Portfolio Aging Analysis (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	$ 4,140	$ 3,350
Current	796,325	767,588
Total Loans Receivable	800,465	770,938
Total Loans Greater Than 90 Days and Accruing	369	559
30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	762	1,021
60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	458	286
Greater Than 90 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	2,920	2,043
Commercial and industrial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	15	0
Current	45,154	45,287
Total Loans Receivable	45,169	45,287
Total Loans Greater Than 90 Days and Accruing	0	0
Commercial and industrial [Member] | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	15	0
Commercial and industrial [Member] | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Commercial and industrial [Member] | Greater Than 90 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Commercial, secured by real estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	1,362	1,030
Current	453,964	418,290
Total Loans Receivable	455,326	419,320
Total Loans Greater Than 90 Days and Accruing	0	0
Commercial, secured by real estate [Member] | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	73
Commercial, secured by real estate [Member] | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	81
Commercial, secured by real estate [Member] | Greater Than 90 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	1,362	876
Residential real estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	2,166	2,099
Current	264,917	271,482
Total Loans Receivable	267,083	273,581
Total Loans Greater Than 90 Days and Accruing	335	516
Residential real estate [Member] | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	590	777
Residential real estate [Member] | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	436	198
Residential real estate [Member] | Greater Than 90 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	1,140	1,124
Consumer [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	72	112
Current	18,566	18,487
Total Loans Receivable	18,638	18,599
Total Loans Greater Than 90 Days and Accruing	34	43
Consumer [Member] | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	16	62
Consumer [Member] | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	22	7
Consumer [Member] | Greater Than 90 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	34	43
Agricultural [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	428	0
Current	13,186	13,486
Total Loans Receivable	13,614	13,486
Total Loans Greater Than 90 Days and Accruing	0	0
Agricultural [Member] | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	44	0
Agricultural [Member] | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Agricultural [Member] | Greater Than 90 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	384	0
Other [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	97	109
Current	538	556
Total Loans Receivable	635	665
Total Loans Greater Than 90 Days and Accruing	0	0
Other [Member] | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	97	109
Other [Member] | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Other [Member] | Greater Than 90 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	$ 0	$ 0

XML

Loans, Impaired Loans (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Recorded Investment
With no related allowance recorded	$ 22,347		$ 22,347		$ 21,899
With an allowance recorded	3,738		3,738		5,087
Total	26,085		26,085		26,986
Unpaid Principal Balance
With no related allowance recorded	25,775		25,775		25,851
With an allowance recorded	3,952		3,952		5,329
Total	29,727		29,727		31,180
Related Allowance
With an allowance recorded	301		301		363
Average Recorded Investment
With no related allowance recorded	23,069	$ 25,762	23,218	$ 26,782
With an allowance recorded	3,823	5,037	3,827	4,967
Total	26,892	30,799	27,045	31,749
Interest Income Recognized
With no related allowance recorded	578	998	1,099	1,580
With an allowance recorded	34	45	70	88
Total	612	1,043	1,169	1,668
Cash basis interest expense on impaired loans			46	11
Commercial and industrial [Member]
Recorded Investment
With no related allowance recorded	1,362		1,362		1,205
With an allowance recorded	355		355		356
Total	1,717		1,717		1,561
Unpaid Principal Balance
With no related allowance recorded	1,635		1,635		1,500
With an allowance recorded	354		354		356
Total	1,989		1,989		1,856
Related Allowance
With an allowance recorded	6		6		9
Average Recorded Investment
With no related allowance recorded	964	1,609	964	1,437
With an allowance recorded	358	389	362	393
Total	1,322	1,998	1,326	1,830
Interest Income Recognized
With no related allowance recorded	26	60	55	82
With an allowance recorded	5	6	10	11
Total	31	66	65	93
Commercial, secured by real estate [Member]
Recorded Investment
With no related allowance recorded	16,289		16,289		16,345
With an allowance recorded	2,632		2,632		3,883
Total	18,921		18,921		20,228
Unpaid Principal Balance
With no related allowance recorded	18,063		18,063		18,335
With an allowance recorded	2,709		2,709		4,014
Total	20,772		20,772		22,349
Related Allowance
With an allowance recorded	196		196		306
Average Recorded Investment
With no related allowance recorded	17,292	19,259	17,460	20,317
With an allowance recorded	2,651	3,746	2,671	3,694
Total	19,943	23,005	20,131	24,011
Interest Income Recognized
With no related allowance recorded	278	742	660	1,099
With an allowance recorded	20	29	42	56
Total	298	771	702	1,155
Residential real estate [Member]
Recorded Investment
With no related allowance recorded	3,808		3,808		3,734
With an allowance recorded	717		717		846
Total	4,525		4,525		4,580
Unpaid Principal Balance
With no related allowance recorded	4,980		4,980		5,055
With an allowance recorded	855		855		958
Total	5,835		5,835		6,013
Related Allowance
With an allowance recorded	90		90		48
Average Recorded Investment
With no related allowance recorded	3,855	4,175	3,823	4,305
With an allowance recorded	780	884	760	862
Total	4,635	5,059	4,583	5,167
Interest Income Recognized
With no related allowance recorded	123	138	194	221
With an allowance recorded	8	10	16	20
Total	131	148	210	241
Consumer [Member]
Recorded Investment
With no related allowance recorded	33		33		81
With an allowance recorded	34		34		2
Total	67		67		83
Unpaid Principal Balance
With no related allowance recorded	48		48		109
With an allowance recorded	34		34		1
Total	82		82		110
Related Allowance
With an allowance recorded	9		9		0
Average Recorded Investment
With no related allowance recorded	40	93	54	101
With an allowance recorded	34	18	34	18
Total	74	111	88	119
Interest Income Recognized
With no related allowance recorded	8	3	15	7
With an allowance recorded	1	0	2	1
Total	9	3	17	8
Agricultural [Member]
Recorded Investment
With no related allowance recorded	384		384		48
With an allowance recorded	0		0		0
Total	384		384		48
Unpaid Principal Balance
With no related allowance recorded	384		384		151
With an allowance recorded	0		0		0
Total	384		384		151
Related Allowance
With an allowance recorded	0		0		0
Average Recorded Investment
With no related allowance recorded	423	110	422	107
With an allowance recorded	0	0	0	0
Total	423	110	422	107
Interest Income Recognized
With no related allowance recorded	123	35	135	132
With an allowance recorded	0	0	0	0
Total	123	35	135	132
Other [Member]
Recorded Investment
With no related allowance recorded	471		471		486
With an allowance recorded	0		0		0
Total	471		471		486
Unpaid Principal Balance
With no related allowance recorded	665		665		701
With an allowance recorded	0		0		0
Total	665		665		701
Related Allowance
With an allowance recorded	0		0		$ 0
Average Recorded Investment
With no related allowance recorded	495	516	495	515
With an allowance recorded	0	0	0	0
Total	495	516	495	515
Interest Income Recognized
With no related allowance recorded	20	20	40	39
With an allowance recorded	0	0	0	0
Total	$ 20	$ 20	$ 40	$ 39

XML

Loans, Troubled Debt Restructuring (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2016 USD ($) Loan	Jun. 30, 2015 USD ($) Loan	Jun. 30, 2016 USD ($) Loan	Jun. 30, 2015 USD ($) Loan
Loan modifications classified as troubled debt restructurings [Abstract]
Number of Loans | Loan	2	2	5	5
Pre-Modification Recorded Balance	$ 37,000	$ 122,000	$ 371,000	$ 209,000
Post-Modification Recorded Balance	$ 37,000	$ 124,000	444,000	211,000
Troubled debt restructurings that subsequently defaulted within 12 months of the restructuring date			$ 0	$ 77,000
Commercial and industrial [Member]
Loan modifications classified as troubled debt restructurings [Abstract]
Number of Loans | Loan	0	1	0	1
Pre-Modification Recorded Balance	$ 0	$ 72,000	$ 0	$ 72,000
Post-Modification Recorded Balance	$ 0	$ 74,000	$ 0	$ 74,000
Commercial, secured by real estate [Member]
Loan modifications classified as troubled debt restructurings [Abstract]
Number of Loans | Loan	0	0	1	0
Pre-Modification Recorded Balance	$ 0	$ 0	$ 299,000	$ 0
Post-Modification Recorded Balance	$ 0	$ 0	$ 372,000	$ 0
Residential real estate [Member]
Loan modifications classified as troubled debt restructurings [Abstract]
Number of Loans | Loan	1	1	2	4
Pre-Modification Recorded Balance	$ 27,000	$ 50,000	$ 45,000	$ 137,000
Post-Modification Recorded Balance	$ 27,000	$ 50,000	$ 45,000	$ 137,000
Consumer [Member]
Loan modifications classified as troubled debt restructurings [Abstract]
Number of Loans | Loan	1	0	2	0
Pre-Modification Recorded Balance	$ 10,000	$ 0	$ 27,000	$ 0
Post-Modification Recorded Balance	$ 10,000	$ 0	$ 27,000	$ 0

XML

Acquired Credit Impaired Loans, Major Classifications of Acquired Credit Impaired Loans (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans gross	$ 800,217	$ 770,701
Less allowance for loan losses	3,373	3,129
Loans, net	797,092	767,809
Commercial and industrial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans gross	45,153	45,275
Commercial, secured by real estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans gross	455,654	419,633
Residential real estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans gross	266,625	273,139
Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans gross	18,545	18,510
Agricultural [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans gross	13,605	13,479
Other loans, including deposit overdrafts [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans gross	635	665
Acquired credit impaired loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans gross	11,044	12,668
Less allowance for loan losses	1	0
Loans, net	11,043	12,668
Acquired credit impaired loans [Member] | Commercial and industrial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans gross	1,363	1,191
Acquired credit impaired loans [Member] | Commercial, secured by real estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans gross	6,249	7,877
Acquired credit impaired loans [Member] | Residential real estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans gross	2,941	3,039
Acquired credit impaired loans [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans gross	20	27
Acquired credit impaired loans [Member] | Agricultural [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans gross	0	48
Acquired credit impaired loans [Member] | Other loans, including deposit overdrafts [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans gross	$ 471	$ 486

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Acquired Credit Impaired Loans, Outstanding Balance and Carrying Value for Acquired Credit Impaired Loans (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities [Abstract]
Outstanding balance	$ 14,369	$ 16,507
Carrying amount	$ 11,043	$ 12,668

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Acquired Credit Impaired Loans, Accretable Yield Related To Acquired Credit Impaired Loans (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities, Accretable Yield Movement Schedule [Roll Forward]
Accretable discount at beginning of year	$ 1,503	$ 2,674
Accretable discount acquired during period	0	413
Reclass from nonaccretable discount to accretable discount	307	943
Less disposals	(3)	(857)
Less accretion	(439)	(1,404)
Accretable discount at end of period	$ 1,368	$ 1,769

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Other Real Estate Owned, Changes in Other Real Estate Owned (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Other Real Estate [Roll Forward]
Balance, beginning of year	$ 846	$ 1,370
Additions	182	99
Reductions due to sales	0	(105)
Reductions due to valuation write downs	(346)	0
Balance, end of period	$ 682	$ 1,364

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Other Real Estate Owned (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015	Jun. 30, 2015	Dec. 31, 2014
Other Real Estate Owned [Line Items]
Other real estate owned and repossessed assets	$ 682	$ 846	$ 1,364	$ 1,370
Total recorded investment in process of foreclosure	477
Commercial real estate [Member]
Other Real Estate Owned [Line Items]
Other real estate owned and repossessed assets	682	846
Residential real estate [Member]
Other Real Estate Owned [Line Items]
Other real estate owned and repossessed assets	$ 0	$ 0

XML

Affordable Housing Tax Credit Limited Partnership (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Equity Method Investments and Joint Ventures [Abstract]
Affordable housing tax credit investment	$ 1,000		$ 1,000
Less amortization	53		12
Net affordable housing tax credit investment	947		988
Unfunded commitment	$ 865		$ 907
Funding period for unfunded commitment (in years)	9 years 6 months
Tax credits and other tax benefits recognized	$ 55	$ 0
Tax credit amortization expense included in provision for income taxes	$ 41	$ 0

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Short-Term Borrowings (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Short-term Debt [Line Items]
Short-term borrowings, amount	$ 30,541	$ 37,387
Short-term borrowings, interest rate	0.61%	0.48%
Line of credit [Member]
Short-term Debt [Line Items]
Short-term borrowings, amount	$ 17,310	$ 13,187
Short-term borrowings, interest rate	1.00%	1.00%
FHLB short-term advance [Member]
Short-term Debt [Line Items]
Short-term borrowings, amount	$ 0	$ 10,000
Short-term borrowings, interest rate	0.00%	0.35%
Repurchase agreements [Member]
Short-term Debt [Line Items]
Short-term borrowings, amount	$ 13,231	$ 14,200
Short-term borrowings, interest rate	0.10%	0.10%

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Income Taxes (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Income Tax Disclosure [Abstract]
Statutory tax rate	34.20%	34.00%	34.20%	34.00%
Increase (decrease) resulting from:
Tax exempt interest	(6.60%)	(5.40%)	(6.40%)	(5.40%)
Tax exempt income on bank owned life insurance	(1.60%)	(1.20%)	(1.50%)	(1.30%)
Other, net	0.00%	0.40%	(0.10%)	0.40%
Effective tax rate	26.00%	27.80%	26.20%	27.70%

XML

Commitments and Contingent Liabilities (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet risks, liability	$ 113,535	$ 118,860
Commitments outstanding for capital expenditures	7,903
Commercial loans [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet risks, liability	6,956	8,160
Other loans [Member] | Fixed rate [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet risks, liability	5,395	2,293
Other loans [Member] | Adjustable rate [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet risks, liability	1,707	1,362
Unused lines of credit [Member] | Fixed rate [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet risks, liability	4,584	6,378
Unused lines of credit [Member] | Adjustable rate [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet risks, liability	84,678	90,153
Unused overdraft protection amounts on demand and NOW accounts [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet risks, liability	9,858	10,057
Standby letters of credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet risks, liability	$ 357	$ 457

XML

Accumulated Other Comprehensive Income (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
Balance beginning	$ 140,108	$ 125,695
Before reclassifications	4,582	(91)
Reclassifications	(429)	(219)
Balance ending	145,710	137,698
Total [Member]
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
Balance beginning	236	785
Balance ending	4,389	475
Unrealized Gains and Losses on Available-for-Sale Securities [Member]
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
Balance beginning	469	1,126
Before reclassifications	4,526	(149)
Reclassifications	(429)	(219)
Balance ending	4,566	758
Changes in Pension Plan Assets and Benefit Obligations [Member]
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
Balance beginning	(233)	(341)
Before reclassifications	56	58
Reclassifications	0	0
Balance ending	$ (177)	$ (283)

XML

Accumulated Other Comprehensive Income, Reclassification of AOCI (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Realized gain on sale of securities	$ 279	$ 221	$ 650	$ 332
Less provision for income taxes	1,043	1,205	2,111	2,287
Unrealized Gains and Losses on Available-for-Sale Securities [Member] | Reclassification out of Accumulated Other Comprehensive Income [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Realized gain on sale of securities	279	221	650	332
Less provision for income taxes	95	75	221	113
Reclassification adjustment, net of taxes	$ 184	$ 146	$ 429	$ 219

XML

Retirement Plans (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Compensation and Retirement Disclosure [Abstract]
Automatic Annual Contribution Employees Hired Before January 1, 2009 Benefit Reduction Under Certain Amendments Minimum, percent			5.00%
Automatic Annual Contribution Employees Hired Before January 1, 2009 Due Benefit Reduction Under Certain Amendments Maximum, percent			7.00%
Employer's matching contribution to 401(k) of employees hired on or after January 1, 2009, percent			50.00%
Maximum annual contribution per employee, percent			3.00%
Funding and administrative costs of noncontributory defined benefit retirement plan and 401(k) plan [Abstract]
401(k) plan	$ 77	$ 90	$ 160	$ 177
Qualified noncontributory defined benefit retirement plan [Member]
Funding and administrative costs of noncontributory defined benefit retirement plan and 401(k) plan [Abstract]
Qualified noncontributory defined benefit retirement plan	220	273	440	543
Components of net periodic pension cost [Abstract]
Service cost	10	10	20	19
Interest cost	19	17	38	34
Amortization of unrecognized net loss	42	43	84	85
Net periodic pension cost	71	$ 70	142	$ 138
Recognized in accumulated other comprehensive income [Abstract]
Net actuarial loss	$ 177		$ 177		$ 233

XML

Stock Based Compensation, Additional Information (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Period options granted to date vest ratably			5 years
Period options granted expires after date of grant			10 years
Employee Stock Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Aggregate intrinsic value for option outstanding	$ 320	$ 349	$ 320	$ 349
Aggregate intrinsic value of options exercisable	314	314	314	314
Total expense related to options included in salaries and wages	1	3	2	10
Tax benefit from compensation expense	0	$ 1	1	$ 3
Compensation costs not yet recognized, period for recognition	$ 4		$ 4
Ownership Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized for issuance (in shares)	200,000		200,000
2015 Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized for issuance (in shares)	450,000		450,000

XML

Stock Based Compensation, Stock Options Outstanding By Exercise Price Range (Details)	6 Months Ended
	Jun. 30, 2016 $ / shares shares
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Outstanding stock options, number (in shares) | shares	76,059
Outstanding stock option, weighted average exercise price (in dollars per share)	$ 11.73
Outstanding stock option, weighted average remaining contractual life	3 years 6 months
Exercisable stock options, number (in shares) | shares	74,314
Exercisable stock option, weighted average exercise price (in dollars per share)	$ 11.71
Exercisable stock options, weighted average remaining contractual life	3 years 5 months 12 days
Exercise Price Range, 9.00 to 10.99 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Exercise price range, lower range limit	$ 9.00
Exercise price range, upper range limit	$ 10.99
Outstanding stock options, number (in shares) | shares	17,633
Outstanding stock option, weighted average exercise price (in dollars per share)	$ 9.00
Outstanding stock option, weighted average remaining contractual life	2 years 6 months 27 days
Exercisable stock options, number (in shares) | shares	17,633
Exercisable stock option, weighted average exercise price (in dollars per share)	$ 9.00
Exercisable stock options, weighted average remaining contractual life	2 years 6 months 27 days
Exercise Price Range 11.00 to 12.99 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Exercise price range, lower range limit	$ 11.00
Exercise price range, upper range limit	$ 12.99
Outstanding stock options, number (in shares) | shares	53,266
Outstanding stock option, weighted average exercise price (in dollars per share)	$ 12.04
Outstanding stock option, weighted average remaining contractual life	4 years 1 month 2 days
Exercisable stock options, number (in shares) | shares	51,521
Exercisable stock option, weighted average exercise price (in dollars per share)	$ 12.03
Exercisable stock options, weighted average remaining contractual life	4 years 13 days
Exercise Price Range 17.00 to 18.99 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Exercise price range, lower range limit	$ 17.00
Exercise price range, upper range limit	$ 18.99
Outstanding stock options, number (in shares) | shares	5,160
Outstanding stock option, weighted average exercise price (in dollars per share)	$ 17.88
Outstanding stock option, weighted average remaining contractual life	7 months 7 days
Exercisable stock options, number (in shares) | shares	5,160
Exercisable stock option, weighted average exercise price (in dollars per share)	$ 17.88
Exercisable stock options, weighted average remaining contractual life	7 months 7 days

XML

Stock Based Compensation, Stock Option Activity (Details) - Stock Options [Member] - $ / shares	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Options outstanding [Roll Forward]
Outstanding at beginning of period (in shares)	83,861	99,810
Granted (in shares)	0	0
Exercised (in shares)	0	(13,449)
Expired (in shares)	(7,802)	(2,500)
Outstanding at end of period (in shares)	76,059	83,861
Exercisable at end of period (in shares)	74,314	75,072
Weighted average exercise price [Roll forward]
Outstanding at beginning of period (in dollars per share)	$ 12.39	$ 12.16
Granted (in dollars per shares)	0.00	0.00
Exercised (in dollars per share)	0.00	11.31
Expired (in dollars per share)	18.76	9.00
Outstanding at end of period (in dollars per share)	11.73	12.39
Exercisable at end of period (in dollars per share)	$ 11.71	$ 12.40

XML

Stock Based Compensation , Restricted Stock Activity (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2016	Jun. 30, 2015
Weighted Average Grant Date Fair Value
Compensation expense relating to restricted stock		$ 45
Restricted Stock Awards [Member]
Shares
Outstanding, January 1, (in shares)		16,038	0
Granted (in shares)		0	0
Vested (in shares)		(5,255)	0
Forfeited (in shares)		0	0
Outstanding, March 31, (in shares)	10,783	10,783	0
Weighted Average Grant Date Fair Value
Outstanding, January 1, (usd per share)		$ 15.47	$ 0.00
Granted (usd per share)		0.00	0.00
Vested (usd per share)		15.47	0.00
Forfeited (usd per share)		0.00	0.00
Outstanding, March 31, (usd per share)	$ 15.47	$ 15.47	$ 0.00
Compensation expense relating to restricted stock	$ 23	$ 45
Tax benefit from compensation expense	7	15
Restricted stock compensation costs not yet recognized	$ 113	$ 113
Compensation costs not yet recognized, period for recognition		4 years 6 months

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Earnings Per Common Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Earnings Per Share [Abstract]
Net income	$ 2,968	$ 3,123	$ 5,932	$ 5,957
Weighted average number of shares outstanding used in the calculation of basic earnings per common share (in shares)	9,922,024	9,694,732	9,919,070	9,504,739
Add dilutive effect of:
Stock options (in shares)	18,299	18,955	17,767	17,629
Stock warrants (in shares)	0	91,041	32,465	86,682
Restricted shares (in shares)	3,474	0	2,598	0
Adjusted weighted average number of shares outstanding used in the calculation of diluted earnings per common share (in shares)	9,943,797	9,804,728	9,971,900	9,609,050
Earnings per common share:
Basic (usd per share)	$ 0.30	$ 0.33	$ 0.60	$ 0.63
Diluted (usd per share)	$ 0.29	$ 0.32	$ 0.59	$ 0.62

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Earnings Per Common Share, Additional Information (Details) - Options to purchase common stock [Member] - $ / shares	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Options excluded from computation of earnings per share (in shares)	5,160	12,962
Weighted average price (in dollars per share)	$ 17.88	$ 18.41

XML

Fair Value Measurements (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2016 USD ($) Fund	Dec. 31, 2015 USD ($)	Jun. 30, 2015 USD ($)	Dec. 31, 2014 USD ($)
Fair Value Disclosures [Abstract]
Number of mutual funds that invest in debt securities or loans that qualify for credit under the Community Reinvestment Act (in fund) | Fund	3
Number Of Investments In Mutual Funds That Are Measured At Fair Value Using Net Asset Value Per Share As A Practical Expedient (in investments) | Fund	2
Redemption notice required to be given to convert capital account, number of days	60 days
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	$ 353,528	$ 377,978
Nonrecurring fair value measurements:
Other real estate owned and repossessed assets	682	846	$ 1,364	$ 1,370
Recurring [Member]
Recurring fair value measurement [Abstract]
Total recurring fair value measurements	353,528	377,978
Recurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Recurring fair value measurement [Abstract]
Total recurring fair value measurements	54,708	73,594
Recurring [Member] | Significant Other Observable Inputs (Level 2) [Member]
Recurring fair value measurement [Abstract]
Total recurring fair value measurements	297,321	302,936
Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member]
Recurring fair value measurement [Abstract]
Total recurring fair value measurements	0	0
Nonrecurring [Member]
Nonrecurring fair value measurements:
Impaired loans	3,483	4,722
Other real estate owned and repossessed assets	682	846
Total nonrecurring fair value measurements	4,165	5,568
Nonrecurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Nonrecurring fair value measurements:
Impaired loans	0	0
Other real estate owned and repossessed assets	0	0
Total nonrecurring fair value measurements	0	0
Nonrecurring [Member] | Significant Other Observable Inputs (Level 2) [Member]
Nonrecurring fair value measurements:
Impaired loans	0	0
Other real estate owned and repossessed assets	0	0
Total nonrecurring fair value measurements	0	0
Nonrecurring [Member] | Significant Unobservable Inputs (Level 3) [Member]
Nonrecurring fair value measurements:
Impaired loans	3,483	4,722
Other real estate owned and repossessed assets	682	846
Total nonrecurring fair value measurements	4,165	5,568
U.S. Treasury notes [Member]
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	53,981	72,846
U.S. Treasury notes [Member] | Recurring [Member]
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	53,981	72,846
U.S. Treasury notes [Member] | Recurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	53,981	72,846
U.S. Treasury notes [Member] | Recurring [Member] | Significant Other Observable Inputs (Level 2) [Member]
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	0	0
U.S. Treasury notes [Member] | Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member]
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	0	0
U.S. Agency notes [Member]
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	115,338	139,889
U.S. Agency notes [Member] | Recurring [Member]
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	115,338	139,889
U.S. Agency notes [Member] | Recurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	0	0
U.S. Agency notes [Member] | Recurring [Member] | Significant Other Observable Inputs (Level 2) [Member]
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	115,338	139,889
U.S. Agency notes [Member] | Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member]
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	0	0
U.S. Agency mortgage-backed securities [Member]
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	48,276	29,378
U.S. Agency mortgage-backed securities [Member] | Recurring [Member]
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	48,276	29,378
U.S. Agency mortgage-backed securities [Member] | Recurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	0	0
U.S. Agency mortgage-backed securities [Member] | Recurring [Member] | Significant Other Observable Inputs (Level 2) [Member]
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	48,276	29,378
U.S. Agency mortgage-backed securities [Member] | Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member]
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	0	0
Certificates of Deposit [Member]
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	248	249
Certificates of Deposit [Member] | Recurring [Member]
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	248	249
Certificates of Deposit [Member] | Recurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	0	0
Certificates of Deposit [Member] | Recurring [Member] | Significant Other Observable Inputs (Level 2) [Member]
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	248	249
Certificates of Deposit [Member] | Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member]
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	0	0
Non-taxable Municipal securities [Member]
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	111,233	105,479
Non-taxable Municipal securities [Member] | Recurring [Member]
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	111,233	105,479
Non-taxable Municipal securities [Member] | Recurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	0	0
Non-taxable Municipal securities [Member] | Recurring [Member] | Significant Other Observable Inputs (Level 2) [Member]
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	111,233	105,479
Non-taxable Municipal securities [Member] | Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member]
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	0	0
Taxable Municipal securities [Member]
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	21,226	26,941
Taxable Municipal securities [Member] | Recurring [Member]
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	21,226	26,941
Taxable Municipal securities [Member] | Recurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	0	0
Taxable Municipal securities [Member] | Recurring [Member] | Significant Other Observable Inputs (Level 2) [Member]
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	21,226	26,941
Taxable Municipal securities [Member] | Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member]
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	0	0
Mutual funds [Member]
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	2,499	2,466
Mutual funds [Member] | Recurring [Member]
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	1,000	1,018
Mutual funds [Member] | Recurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	0	18
Mutual funds [Member] | Recurring [Member] | Significant Other Observable Inputs (Level 2) [Member]
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	1,000	1,000
Mutual funds [Member] | Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member]
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	0	0
Mutual funds measured at net asset value [Member] | Recurring [Member]
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	1,499	1,448
Trust preferred securities [Member]
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	49	50
Trust preferred securities [Member] | Recurring [Member]
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	49	50
Trust preferred securities [Member] | Recurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	49	50
Trust preferred securities [Member] | Recurring [Member] | Significant Other Observable Inputs (Level 2) [Member]
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	0	0
Trust preferred securities [Member] | Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member]
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	0	0
Equity securities [Member]
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	678	680
Equity securities [Member] | Recurring [Member]
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	678	680
Equity securities [Member] | Recurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	678	680
Equity securities [Member] | Recurring [Member] | Significant Other Observable Inputs (Level 2) [Member]
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	0	0
Equity securities [Member] | Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member]
Recurring fair value measurement [Abstract]
Available-for-sale, at fair value	$ 0	$ 0

XML

Fair Value Measurements, Quantitative Information About Unobservable Inputs Used In Recurring And Nonrecurring Level 3 Inputs (Details) - Fair Value, Measurements, Nonrecurring [Member] - Fair Value, Inputs, Level 3 [Member] - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2016	Dec. 31, 2015
Impaired loans [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value	$ 3,483	$ 4,722
Impaired loans [Member] | Maximum [Member] | Discounted Cash Flows [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discount rate	8.25%	11.00%
Impaired loans [Member] | Minimum [Member] | Discounted Cash Flows [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discount rate	4.44%	4.00%
Impaired loans [Member] | Weighted Average [Member] | Discounted Cash Flows [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discount rate	5.49%	5.27%
Other real estate owned [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value	$ 682	$ 846

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Fair Value Measurements, By Balance Sheet Grouping (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
FINANCIAL ASSETS:
Investment securities, held-to-maturity	$ 40,282	$ 22,630
Carrying Amount [Member]
FINANCIAL ASSETS:
Cash and cash equivalents	19,007	14,987
Investment securities, held-to-maturity	39,447	22,633
Federal Reserve Bank stock	2,732	2,732
Federal Home Loan Bank stock	3,638	3,638
Loans, net	797,092	767,809
Accrued interest receivable	3,514	3,380
FINANCIAL LIABILITIES:
Deposits	1,124,698	1,087,160
Short-term borrowings	30,541	37,387
Long-term debt	726	5,947
Accrued interest payable	296	345
Fair Value [Member]
FINANCIAL ASSETS:
Cash and cash equivalents	19,007	14,987
Investment securities, held-to-maturity	40,282	22,630
Federal Reserve Bank stock	2,732	2,732
Federal Home Loan Bank stock	3,638	3,638
Loans, net	792,749	761,388
Accrued interest receivable	3,514	3,380
FINANCIAL LIABILITIES:
Deposits	1,125,291	1,087,914
Short-term borrowings	30,541	37,387
Long-term debt	749	6,290
Accrued interest payable	296	345
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
FINANCIAL ASSETS:
Cash and cash equivalents	19,007	14,987
Investment securities, held-to-maturity	0	0
Federal Reserve Bank stock	2,732	2,732
Federal Home Loan Bank stock	3,638	3,638
Loans, net	0	0
Accrued interest receivable	168	208
FINANCIAL LIABILITIES:
Deposits	908,910	869,940
Short-term borrowings	30,541	37,387
Long-term debt	0	0
Accrued interest payable	15	16
Significant Other Observable Inputs (Level 2) [Member]
FINANCIAL ASSETS:
Cash and cash equivalents	0	0
Investment securities, held-to-maturity	0	0
Federal Reserve Bank stock	0	0
Federal Home Loan Bank stock	0	0
Loans, net	0	0
Accrued interest receivable	1,186	1,280
FINANCIAL LIABILITIES:
Deposits	216,381	217,974
Short-term borrowings	0	0
Long-term debt	749	6,290
Accrued interest payable	281	329
Significant Unobservable Inputs (Level 3) [Member]
FINANCIAL ASSETS:
Cash and cash equivalents	0	0
Investment securities, held-to-maturity	40,282	22,630
Federal Reserve Bank stock	0	0
Federal Home Loan Bank stock	0	0
Loans, net	792,749	761,388
Accrued interest receivable	2,160	1,892
FINANCIAL LIABILITIES:
Deposits	0	0
Short-term borrowings	0	0
Long-term debt	0	0
Accrued interest payable	$ 0	$ 0