10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.   20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2017

or

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

For the transition period from _______________________  to  ______________________

Commission File Number  000-26121

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)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of Each Class	Name of each exchange on which registered
None	None

Securities registered pursuant to 12(g) of the Exchange Act:

COMMON STOCK, NO PAR VALUE

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

☐ Yes         ☒ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

☐ Yes         ☒ No

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.   ☒ Yes         ☐ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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).

☒ Yes         ☐ No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     ☐

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	☒ Accelerated filer
☐ Non-accelerated filer (Do not check if a smaller reporting company)	☐ Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes         ☒ No

The aggregate market value of the registrant’s outstanding voting common stock held by nonaffiliates on June 30, 2017, determined using a per share closing price on that date of $20.00 as quoted on the NASDAQ Capital Market, was $192,316,000.

As of March 8, 2018, 10,026,203 common shares were issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement included in the Notice of Annual Meeting of Shareholders to be held April 24, 2018, which Proxy Statement will be mailed to shareholders within 120 days from the end of the fiscal year ended December 31, 2017 are incorporated by reference into Part III.

LCNB CORP.

For the Year Ended December 31, 2017

TABLE OF CONTENTS

PART I	4
Item 1.  Business	4
Item 1A.  Risk Factors	15
Item 1B. Unresolved Staff Comments	20
Item 2.  Properties	21
Item 3.  Legal Proceedings	23
Item 4.  Mine Safety Disclosures	23
PART II	24
Item 5.  Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities.	24
Item 6.  Selected Financial Data	27
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations	28
Item 7A. Quantitative and Qualitative Disclosures About Market Risk	39
Item 8.  Financial Statements and Supplementary Data	40
REPORT OF MANAGEMENT’S ASSESSMENT OF INTERNAL CONTROL OVER FINANCIAL REPORTING	40
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	41
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	44
Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosures	95
Item 9A.  Controls and Procedures	95
Item 9B.  Other Information	95
PART III	96
Item 10. Directors, Executive Officers and Corporate Governance	96
Item 11. Executive Compensation	96
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.	96
Item 13. Certain Relationships and Related Transactions, and Director Independence	96
Item 14.  Principal Accounting Fees and Services	96
PART IV	97
Item 15.  Exhibits, Financial Statement Schedules	97
SIGNATURES	99

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LCNB CORP. AND SUBSIDIARIES

PART I

Item 1.  Business

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’s ability to integrate future acquisitions, including the pending merger with Columbus First Bancorp, Inc., may be unsuccessful, or may be more difficult, time-consuming or costly than expected;

3. LCNB’s ability to obtain regulatory approvals of the proposed merger of LCNB with Columbus First Bancorp, Inc. on the proposed terms and schedule, and approval of the merger by the shareholders of LCNB or Columbus First Bancorp, Inc. may be unsuccessful;

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

5. LCNB may face competitive loss of customers;

6. 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;

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

8. 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;

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

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

11. 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;

12. difficulties with technology or data security breaches, including cyberattacks, that could negatively affect LCNB's ability to conduct business and its relationships with customers, vendors, and others; and

13. government intervention in the U.S. financial system, including the effects of recent legislative, tax, accounting and regulatory actions and reforms, including the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the Jumpstart Our Business Startups Act, the Consumer Financial Protection Bureau, the capital ratios of Basel III as adopted by the federal banking authorities and the Tax Cuts and Jobs Act. 

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. 

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LCNB CORP. AND SUBSIDIARIES

DESCRIPTION OF LCNB CORP.'S BUSINESS

General Description

LCNB Corp., an Ohio corporation formed in December 1998, is a financial holding company headquartered in Lebanon, Ohio.  Substantially all of the assets, liabilities and operations of LCNB Corp. are attributable to its wholly-owned subsidiary, LCNB National Bank (the "Bank").  LCNB Risk Management, Inc., a captive insurance agency, was incorporated in Nevada by LCNB Corp. during the second quarter 2017. LCNB Corp. and its subsidiaries are herein collectively referred to as “LCNB.” The predecessor of LCNB Corp., the Bank, was formed as a national banking association in 1877.  On May 19, 1999, the Bank became a wholly-owned subsidiary of LCNB Corp.  

On January 11, 2013, LCNB consummated a merger with First Capital Bancshares, Inc. (“First Capital”) in a stock and cash transaction valued at approximately $20.2 million.  Immediately following the merger of First Capital into LCNB, Citizens National Bank (“Citizens National”), a wholly-owned subsidiary of First Capital, was merged into LCNB National Bank.  At that time, Citizens National’s six full–service offices became offices of LCNB.  Three of these offices are located in Chillicothe, Ohio and one office is located in each of Frankfort, Ohio, Clarksburg, Ohio, and Washington Court House, Ohio. The office in Clarksburg, Ohio was closed on January 24, 2017.

On January 24, 2014, LCNB purchased all of the outstanding stock of Eaton National Bank & Trust Co. ("Eaton National") from its holding company, Colonial Banc Corp., in a cash transaction totaling $24.75 million. Upon consummation of the transaction, Eaton National was merged into the Bank and its five offices became offices of the Bank. Two of these offices are located in Eaton, Ohio and one office is located in each of New Paris, Ohio, Lewisburg, Ohio, and West Alexandria, Ohio.

On April 30, 2015, LCNB consummated a merger with BNB Bancorp, Inc. (“BNB”) in a stock and cash transaction valued at approximately $13.5 million. Immediately following the merger of BNB into LCNB, Brookville National Bank ("Brookville National"), a wholly-owned subsidiary of BNB, was merged into LCNB National Bank. At that time, Brookville National's two offices, both located in Brookville, Ohio, became offices of LCNB. The office located on Hay Avenue in Brookville was closed on November 10, 2017.

On December 20, 2017, LCNB and Columbus First Bancorp, Inc. (“CFB”) entered into an Agreement and Plan of Merger pursuant to which CFB will be merged into LCNB in an all-stock transaction valued at $66.9 million. Immediately following the merger of CFB into LCNB, Columbus First Bank (“Columbus First”), a wholly-owned subsidiary of CFB, will be merged into the Bank. Columbus First operates one full-service office in Worthington, Ohio.  This office will become a branch of the Bank after the merger. The transaction is expected to close in the second quarter of 2018, assuming shareholder approval by LCNB and CFB shareholders and all applicable governmental approvals have been received by that date and all other conditions precedent to the merger have been satisfied or waived.

The Bank is a full service community bank offering a wide range of commercial and personal banking services.  Deposit services include checking accounts, NOW accounts, savings accounts, Christmas and vacation club accounts, money market deposit accounts, Lifetime Checking accounts (a senior citizen program), individual retirement accounts, and certificates of deposit.  Additional supportive services include online banking, bill pay, mobile banking and telephone banking. Commercial customers also have both cash management and remote deposit capture products as potential options. Deposits of the Bank are insured up to applicable limits by the Deposit Insurance Fund, which is administered by the Federal Deposit Insurance Corporation (the “FDIC”).

Loan products offered include commercial and industrial loans, commercial and residential real estate loans, agricultural loans, construction loans, various types of consumer loans, and Small Business Administration loans.  The Bank's residential mortgage lending activities consist primarily of loans for purchasing or refinancing personal residences, home equity lines of credit, and loans for commercial or consumer purposes secured by residential mortgages.  Most fixed-rate residential real estate loans are sold to the Federal Home Loan Mortgage Corporation with servicing retained.  Consumer lending activities include automobile, boat, home improvement and personal loans.

The Trust and Investment Management Division of the Bank provides complete trust administrative, estate settlement, and fiduciary services and also offers investment management of trusts, agency accounts, individual retirement accounts, and foundations/endowments.

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LCNB CORP. AND SUBSIDIARIES

Security brokerage services are offered by the Bank through arrangements with LPL Financial LLC, a registered broker/dealer.  Licensed brokers offer a full range of investment services and products, including financial needs analysis, mutual funds, securities trading, annuities, and life insurance.

Other services offered include safe deposit boxes, night depositories, cashier's checks, bank-by-mail, ATMs, cash and transaction services, debit cards, wire transfers, electronic funds transfer, utility bill collections, notary public service, personal computer-based cash management services, 24 hour telephone banking, PC Internet banking, mobile banking, and other services tailored for both individuals and businesses.

The Bank is not dependent upon any one significant customer or specific industry.  Business is not seasonal to any material degree.

The address of the main office of the Bank is 2 North Broadway, Lebanon, Ohio 45036; telephone (513) 932-1414.

Primary Market Area

The Bank considers its primary market area to consist of counties where it has a physical presence and neighboring counties, which includes Southwestern and South Central Ohio. At December 31, 2017, the Bank had:

• 34 offices, including a main office in Warren County, Ohio and branch offices in Warren, Butler, Clinton, Clermont, Hamilton, Montgomery, Preble, Ross, and Fayette Counties, Ohio,

• a loan production office in Franklin County, Ohio,

• an Operations Center in Warren County, Ohio,

• and 38 ATMs.

Competition

The Bank faces strong competition both in making loans and attracting deposits.  The deregulation of the banking industry and the wide spread enactment of state laws that permit multi-bank holding companies as well as the availability of nationwide interstate banking has created a highly competitive environment for financial services providers. The Bank competes with other national and state banks, savings and loan associations, credit unions, finance companies, mortgage brokerage firms, realty companies with captive mortgage brokerage firms, mutual funds, insurance companies, brokerage and investment banking companies, and other financial intermediaries operating in its market and elsewhere, many of whom have substantially larger financial and managerial resources.

The Bank seeks to minimize the competitive effect of other financial institutions through a community banking approach that emphasizes direct customer access to the Bank's CEO/President and other officers in an environment conducive to friendly, informed, and courteous personal services.  Management believes that the Bank is well positioned to compete successfully in its primary market area.  Competition among financial institutions is based upon interest rates offered on deposit accounts, interest rates charged on loans and other credit and service charges, the quality and scope of the services rendered, the convenience of the banking facilities, and, in the case of loans to commercial borrowers, relative lending limits.

The ability to access and use technology is an increasingly competitive factor in the finance services industry. Technology relating to the delivery of financial services, the security and privacy of customer information, and the processing of information is evolving rapidly. LCNB must continually make technology investments to remain competitive in the finance services industry.

Management believes the commitment of the Bank to personal service, innovation, and involvement in the communities and primary market areas it serves, as well as its commitment to quality community banking service, are factors that contribute to its competitive advantage.

Supervision and Regulation

LCNB Corp., as a financial holding company, is regulated under the Bank Holding Company Act of 1956, as amended (the "Act"), and is subject to the supervision and examination of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board").  

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LCNB CORP. AND SUBSIDIARIES

The Bank is subject to the provisions of the National Bank Act.  The Bank is subject to primary supervision, regulation and examination by the Office of the Comptroller of the Currency (the "OCC"). The Bank is also subject to the rules and regulations of the Board of Governors of the Federal Reserve System and the FDIC.  

LCNB Corp. and the Bank are subject to an extensive array of banking laws and regulations that are intended primarily for the protection of the Bank's customers and depositors.  These laws and regulations govern such areas as permissible activities, loans and investments, and rates of interest that can be charged on loans and reserves.  LCNB and the Bank also are subject to general U.S. federal laws and regulations and to the laws and regulations of the State of Ohio.  Set forth below are brief descriptions of selected laws and regulations applicable to LCNB and the Bank.

The Financial Reform, Recovery and Enforcement Act of 1989 ("FIRREA") provides that a holding company and its controlled insured depository institutions are liable for any loss incurred by the FDIC in connection with the default of any FDIC assisted transaction involving an affiliated insured bank or savings association.

The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") substantially revised the bank regulatory and funding provisions of the Federal Deposit Insurance Act and several other federal banking statutes.  Among its many reforms, FDICIA, as amended:

1. Required regulatory agencies to take "prompt corrective action" with financial  institutions that do not meet minimum capital requirements; 

2. Established five capital tiers:  well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized;

3. Imposed significant restrictions on the operations of a financial institution that is not rated well-capitalized or adequately capitalized;

4. Prohibited a depository institution from making any capital distributions, including payments of dividends or paying any management fee to its holding company, if the institution would be undercapitalized as a result; 

5. Implemented a risk-based premium system;

6. Required an audit committee to be comprised of outside directors; 

7. Required a financial institution with more than $500 million in total assets to issue annual, audited financial statements prepared in conformity with U.S. generally accepted accounting principles; and

8. Required a financial institution with more than $1 billion in total assets to document, evaluate, and report on the effectiveness of the entity's internal control system and required an independent public accountant to attest to management's assertions concerning the bank's internal control system.

The members of an audit committee for banks with more than $1 billion in total assets must be independent of management.  FDICIA does not relieve financial institutions that are public companies, such as LCNB, from internal control reporting and attestation requirements or audit committee independence requirements prescribed by the Sarbanes-Oxley Act of 2002 (see below).

The Gramm-Leach-Bliley Act, which amended the Bank Holding Company Act of 1956 and other banking related laws, was signed into law on November 12, 1999.  The Gramm-Leach-Bliley Act repealed certain sections of the Glass-Steagall Act and substantially eliminated the barriers separating the banking, insurance, and securities industries.  Effective March 11, 2000, qualifying bank holding companies could elect to become financial holding companies.  Financial holding companies have expanded investment powers, including affiliating with securities and insurance firms and engaging in other activities that are "financial in nature or incidental to such financial activity," as defined in the act, or "complementary to a financial activity."

The Sarbanes-Oxley Act of 2002 ("SOX") became effective on July 30, 2002.  The purpose of SOX is to strengthen accounting oversight and corporate accountability by enhancing disclosure requirements, increasing accounting and auditor regulation, creating new federal crimes, and increasing penalties for existing federal crimes.  SOX directly impacts publicly traded companies, certified public accounting firms auditing public companies, attorneys who work for public companies or have public companies as clients, brokerage firms, investment bankers, and financial analysts who work for brokerage firms or investment bankers.  Key provisions affecting LCNB include: 

1. Certification of financial reports by the chief executive officer ("CEO") and the chief financial officer ("CFO"), who are responsible for designing and monitoring internal controls to ensure that material information relating to the issuer and its consolidated subsidiaries is made known to the certifying officers by others within the company;

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LCNB CORP. AND SUBSIDIARIES

2. Inclusion of an internal control report in annual reports that include management's assessment of the effectiveness of a company's internal control over financial reporting and a report by the company's independent registered public accounting firm attesting to the effectiveness of internal control over financial reporting; 

3. Accelerated reporting of stock trades on Form 4 by directors and executive officers; 

4. Disgorgement requirements of incentive pay or stock-based compensation profits received within twelve months of the release of financial statements if the company is later required to restate those financial statements due to material noncompliance with any financial reporting requirement that resulted from misconduct;

5. Disclosure in a company's periodic reports stating if it has adopted a code of ethics for its CFO and principal accounting officer or controller and, if such code of ethics has been implemented,  immediate disclosure of any change in or waiver of the code of ethics;

6. Disclosure in a company's periodic reports stating if at least one member of the audit committee is a "financial expert," as that term is defined by the Securities and Exchange Commission (the "SEC"); and

7. Implementation of new duties and responsibilities for a company's audit committee, including independence requirements, the direct responsibility to appoint the outside auditing firm and to provide oversight of the auditing firm's work, and a requirement to establish procedures for the receipt, retention, and treatment of complaints from a company's employees regarding questionable accounting, internal control, or auditing matters.

In addition, the SEC adopted final rules on September 5, 2002, which rules were amended in December, 2005, requiring accelerated filing of quarterly and annual reports.  Under the amended rules, “large accelerated filers” includes companies with a market capitalization of $700 million or more and “accelerated filers” includes companies with a market capitalization between $75 million and $700 million. Large accelerated filers are required to file their annual reports within 60 days of year-end and quarterly reports within 40 days. Accelerated filers are required to file their annual and quarterly reports within 75 days and 40 days, respectively.  These new accelerated filing deadlines were effective for fiscal years ending on or after December 15, 2005.  Under the amended rules, LCNB is considered an accelerated filer.

The Federal Deposit Insurance Reform Act of 2005 and the Federal Deposit Insurance Reform Conforming Amendments Act of 2005 (collectively, the “Deposit Insurance Reform Acts”) were both signed into law during February, 2006.  The provisions of the Deposit Insurance Reform Acts included:

1. Merging the Bank Insurance Fund and the Savings Association Insurance Fund into a new fund called the Deposit Insurance Fund, effective March 31, 2006;

2. Increasing insurance coverage for retirement accounts from $100,000 to $250,000, effective April 1, 2006; and

3. Eliminating a 1.25% hard target Designated Reserve Ratio, as defined, and giving the FDIC discretion to set the Designated Reserve Ratio within a range of 1.15% to 1.50% for any given year.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) became effective on July 21, 2010.  The Dodd-Frank Act includes provisions that specifically affect financial institutions and other entities providing financial services and other corporate governance and compensation provisions that will affect most public companies.

The Dodd-Frank Act established a new independent regulatory body within the Federal Reserve System known as the Consumer Financial Protection Bureau (the “CFPB”).  The CFPB has assumed responsibility for most consumer protection laws and has broad authority, with certain exceptions, to regulate financial products offered by banks and non-banks.  The CFPB has authority to supervise, examine, and take enforcement actions with respect to depository institutions with more than $10 billion in assets, non-bank mortgage industry participants, and other CFPB-designated non-bank providers of consumer financial services.  The primary regulator for depository institutions with $10 billion or less in assets will continue to have primary examination and enforcement authority for these institutions.  The regulations enforced, however, will be the regulations written by the CFPB.

The Dodd-Frank Act directs federal bank regulators to develop new capital requirements for holding companies and depository institutions that address activities that pose risk to the financial system, such as significant activities in higher risk areas, or concentrations in assets whose reported values are based on models.

The Dodd-Frank Act permanently raised the FDIC maximum deposit insurance amount to $250,000.  In addition, the Dodd-Frank Act places a floor on the FDIC’s reserve ratio at 1.35% of estimated insured deposits or the comparable percentage of the assessment base.

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LCNB CORP. AND SUBSIDIARIES

General corporate governance provisions included in the Dodd-Frank Act include expanding executive compensation disclosures to be included in the annual proxy statement, requiring non-binding shareholder advisory votes on executive compensation at annual meetings, enhancing independence requirements for compensation committee members and any advisers used by the compensation committee, and requiring the adoption of certain compensation policies including the recovery of executive compensation in the event of a financial statement restatement.

Noncompliance with laws and regulations by bank holding companies and banks can lead to monetary penalties and/or an increased level of supervision or a combination of these two items.  Management is not aware of any current significant instances of noncompliance with laws and regulations and does not anticipate any problems maintaining compliance on a prospective basis.  Recent regulatory inspections and examinations of LCNB and the Bank have not disclosed any significant instances of noncompliance.

The earnings and growth of LCNB are affected not only by general economic conditions, but also by the fiscal and monetary policies of the federal government and its agencies, particularly the Federal Reserve Board.  Its policies influence the amount of bank loans and deposits and the interest rates charged and paid thereon and thus have an effect on earnings.  The nature of future monetary policies and the effect of such policies on the future business and earnings of LCNB and the Bank cannot be predicted.

A substantial portion of LCNB's cash revenues is derived from dividends paid by the Bank.  These dividends are subject to various legal and regulatory restrictions.  Generally, dividends are limited to the aggregate of current year retained net income, as defined, plus the retained net income of the two prior years.  In addition, dividend payments may not reduce capital levels below minimum regulatory guidelines.

Employees

As of December 31, 2017, LCNB employed 310 full-time equivalent employees. LCNB is not a party to any collective bargaining agreement.  Management considers its relationship with its employees to be very good.  Employee benefit programs are considered by management to be competitive with benefit programs provided by other financial institutions and major employers within LCNB’s market area.

Availability of Financial Information

LCNB files unaudited quarterly financial reports on Form 10-Q, annual financial reports on Form 10-K, current reports on Form 8-K, and amendments to these reports are filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 with the SEC.  Copies of these reports are available free of charge in the shareholder information section of the Bank's website, www.lcnb.com, as soon as reasonably practicable after they are electronically filed or furnished to the SEC, or by writing to:

Robert C. Haines II

Executive Vice President, CFO

LCNB Corp.

2 North Broadway

P.O. Box 59

Lebanon, Ohio  45036

Financial reports and other materials filed by LCNB with the SEC may also be read and copied at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.  Information on the operation of the Public Reference Room may be obtained from the SEC by calling 1-800-SEC-0330.  The SEC also maintains an internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding registrants that file reports electronically, as LCNB does.

FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES

LCNB and its subsidiaries do not have any offices located in foreign countries and have no foreign assets, liabilities or related income and expense for the years presented.

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LCNB CORP. AND SUBSIDIARIES

STATISTICAL INFORMATION

The following tables and certain tables appearing in Item 7, Management's Discussion and Analysis present additional statistical information about LCNB Corp. and its operations and financial condition. They should be read in conjunction with the consolidated financial statements and related notes and the discussion included in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, and Item 7A, Quantitative and Qualitative Disclosures about Market Risk.

Distribution of Assets, Liabilities and Shareholders' Equity; Interest Rates and Interest Differential

The table presenting an average balance sheet, interest income and expense, and the resultant average yield for average interest-earning assets and average interest-bearing liabilities is included in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations.

The table analyzing changes in interest income and expense by volume and rate is included in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations.

Investment Portfolio

The following table presents the carrying values of securities for the years indicated:

	At December 31,
	2017		2016	2015
	(In thousands)
Securities available-for-sale:
U.S. Treasury notes	$	2,259	28,145	72,846
U.S. Agency notes	83,261		85,400	139,889
U.S. Agency mortgage-backed securities	67,153		71,047	29,378
Certificates of deposit	—		—	249
Municipal securities	122,540		132,860	132,420
Mutual funds	2,542		2,482	2,466
Trust preferred securities	50		48	50
Equity securities	667		677	680
Total securities available-for-sale	278,472		320,659	377,978
Securities held-to-maturity:
Municipal securities	32,571		41,003	22,633
Federal Reserve Bank stock	2,732		2,732	2,732
Federal Home Loan Bank stock	3,638		3,638	3,638
Total securities	$	317,413	368,032	406,981

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LCNB CORP. AND SUBSIDIARIES

Contractual maturities of securities at December 31, 2017, were as follows.  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	Yield		Amortized Cost		Fair Value	Yield
	(Dollars in thousands)
U.S. Treasury notes:
Within one year	$	—	—	—	%	$	—	—	—	%
One to five years	—		—	—	%	—		—	—	%
Five to ten years	2,283		2,259	2.07	%	—		—	—	%
After ten years	—		—	—	%	—		—	—	%
Total U.S. Treasury notes	2,283		2,259	2.07	%	—		—	—	%
U.S. Agency notes:
Within one year	998		998	1.40	%	—		—	—	%
One to five years	38,235		37,805	1.77	%	—		—	—	%
Five to ten years	45,604		44,458	2.02	%	—		—	—	%
After ten years	—		—	—	%	—		—	—	%
Total U.S. Agency notes	84,837		83,261	1.90	%	—		—	—	%
Municipal securities (1):
Within one year	10,224		10,269	3.29	%	4,043		4,047	3.15	%
One to five years	54,665		54,648	2.73	%	4,128		4,045	2.90	%
Five to ten years	54,633		54,119	2.94	%	8,415		8,286	3.04	%
After ten years	3,640		3,504	2.80	%	15,985		15,972	5.81	%
Total Municipal securities	123,162		122,540	2.93	%	32,571		32,350	4.40	%
U.S. Agency mortgage-backed securities	68,347		67,153	2.17	%	—		—	—	%
Mutual funds	2,586		2,542	2.23	%	—		—	—	%
Trust preferred securities	49		50	7.78	%	—		—	—	%
Equity securities	574		667	3.59	%	—		—	—	%
Totals	$	281,838	278,472	2.40	%	32,571		32,350	4.40	%

(1) Yields on tax-exempt obligations are computed on a taxable-equivalent basis based upon a 34.0% statutory Federal income tax rate.

Excluding holdings in U.S. Treasury securities and U.S. Government Agencies, there were no investments in securities of any issuer that exceeded 10% of LCNB's consolidated shareholders' equity at December 31, 2017.

Loan Portfolio

Administration of the lending function is the responsibility of the Chief Lending Officer and certain senior lenders. Lenders perform their duties subject to oversight and policy direction from the Board of Directors and the Loan Committee. The Loan Committee consists of LCNB’s Chief Executive Officer/President, Chief Financial Officer, Cashier, Chief Lending Officer, Chief Credit Officer, Loan Operations Officer, Loan Review Officer, Credit Analysis Officer, and the officers in charge of the commercial, agricultural, and retail loan portfolios.

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LCNB CORP. AND SUBSIDIARIES

Employees authorized to accept loan applications have various, designated lending limits for the approval of loans.  A loan application for an amount outside a particular employee’s lending limit needs to be approved by an employee with a lending limit sufficient for that loan.  Loans secured by residential or commercial real estate require the approval of two individuals with appropriate lending authority:  Chief Executive Officer/President, Chief Lending Officer, Chief Credit Officer, Senior Vice President ("SVP") of Commercial Lending, SVP of Mortgage Lending, SVP of Consumer Lending, Assistant Vice President of Secondary Market Lending, or other board-designated lending officers.  Board approval is required on any loan with policy exceptions or that will exceed 50% of the Bank's legal lending limit, rounded down to the previous $100,000, in aggregate credit to any one borrower or entity, as defined by the OCC in 12 C.F.R § 32.2(b).

Interest rates charged by LCNB vary with degree of risk, type of loan, amount, complexity, repricing frequency and other relevant factors associated with the loan.

The following table summarizes the distribution of the loan portfolio for the years indicated:

	At December 31,
	2017				2016				2015				2014				2013
	Amount		%		Amount		%		Amount		%		Amount		%		Amount			%
	(Dollars in thousands)
Commercial and industrial	$	36,057	4.2	%	$	41,878	5.1	%	$	45,275	5.9	%	$	35,424	5.1	%	$	29,337		5.1	%
Commercial, secured by real estate	527,947		62.2	%	477,275		58.2	%	419,633		54.5	%	379,141		54.3	%	314,252			54.7	%
Residential real estate	251,582		29.6	%	265,788		32.5	%	273,139		35.4	%	254,087		36.4	%	215,587			37.6	%
Consumer	17,450		2.1	%	19,173		2.3	%	18,510		2.4	%	18,006		2.5	%	12,643			2.2	%
Agricultural	15,194		1.8	%	14,802		1.8	%	13,479		1.7	%	11,472		1.6	%	2,472			0.4	%
Other loans, including deposit overdrafts	539		0.1	%	633		0.1	%	665		0.1	%	680		0.1	%	91			—	%
	848,769		100.0	%	819,549		100.0	%	770,701		100.0	%	698,810		100.0	%	574,382			100.0	%
Deferred origination costs (fees), net	291				254				237				146				(28		)
Total loans	849,060				819,803				770,938				698,956				574,354
Less allowance for loan losses	3,403				3,575				3,129				3,121				3,588
Loans, net	$	845,657			$	816,228			$	767,809			$	695,835			$	570,766

As of December 31, 2017, there were no concentrations of loans exceeding 10% of total loans that are not already disclosed as a category of loans in the above table, except for loans secured by multifamily properties. Loans secured by multifamily properties, which are included in the commercial, secured by real estate category in the above table, totaled $85,853,000, or 10.1% of total loans, at December 31, 2017.

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LCNB CORP. AND SUBSIDIARIES

The following table summarizes the commercial and agricultural loan maturities and sensitivities to interest rate change at December 31, 2017:

	(In thousands)
Maturing in one year or less	$	32,732
Maturing after one year, but within five years	57,451
Maturing beyond five years	489,015
Total commercial and agricultural loans	$	579,198
Loans maturing beyond one year:
Fixed rate	$	199,916
Variable rate	346,550
Total	$	546,466

Risk Elements

The following table summarizes non-accrual, past-due, and accruing restructured loans for the dates indicated:

	At December 31,
	2017			2016		2015		2014		2013
	(Dollars in thousands)
Non-accrual loans	$	2,965		5,725		1,723		5,599		2,961
Past-due 90 days or more and still accruing	—			23		559		203		250
Accruing restructured loans	10,469			11,731		13,723		14,269		15,151
Total	$	13,434		17,479		16,005		20,071		18,362
Percent to total loans	1.58		%	2.13	%	2.08	%	2.87	%	3.20	%

LCNB is not committed to lend additional funds to debtors whose loans have been modified to provide a reduction or deferral of principal or interest because of deterioration in the financial position of the borrower.

At December 31, 2017, there were no material additional loans not classified as acquired credit impaired or already disclosed as non-accrual, accruing restructured, or accruing past due 90 days or more where known information about possible credit problems of the borrowers causes management to have serious doubts as to the ability of such borrowers to comply with present loan repayment terms.

Summary of Loan Loss Experience

The table summarizing the activity related to the allowance for loan losses is included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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LCNB CORP. AND SUBSIDIARIES

Allocation of the Allowance for Loan Losses

The following table presents the allocation of the allowance for loan loss:

	At December 31,
	2017				2016				2015				2014				2013
	Amount		Percent of Loans in Each Category to Total Loans		Amount		Percent of Loans in Each Category to Total Loans		Amount		Percent of Loans in Each Category to Total Loans		Amount		Percent of Loans in Each Category to Total Loans		Amount		Percent of Loans in Each Category to Total Loans
	(Dollars in thousands)
Commercial and industrial	$	378	4.2	%	$	350	5.1	%	$	244	5.9	%	$	129	5.1	%	$	175	5.1	%
Commercial, secured by real estate	2,178		62.2	%	2,179		58.2	%	1,908		54.5	%	1,990		54.3	%	2,520		54.7	%
Residential real estate	717		29.6	%	885		32.5	%	854		35.4	%	926		36.4	%	826		37.6	%
Consumer	76		2.1	%	96		2.3	%	54		2.4	%	63		2.5	%	66		2.2	%
Agricultural	53		1.8	%	60		1.8	%	66		1.7	%	11		1.6	%	—		0.4	%
Other loans, including deposit overdrafts	1		0.1	%	5		0.1	%	3		0.1	%	2		0.1	%	1		—	%
Unallocated	—		—		—		—		—		—		—		—		—		—
Total	$	3,403	100.0	%	$	3,575	100.0	%	$	3,129	100.0	%	$	3,121	100.0	%	$	3,588	100.0	%

Deposits

The statistical information regarding average amounts and average rates paid for the deposit categories is included in the "Distribution of Assets, Liabilities and Shareholders' Equity" table included in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following table presents the contractual maturity of time deposits of $100,000 or more at December 31, 2017:

	(In thousands)
Maturity within 3 months	$	4,311
After 3 but within 6 months	2,830
After 6 but within 12 months	14,526
After 12 months	44,940
	$	66,607

Return on Equity and Assets

The statistical information regarding the return on assets, return on equity, dividend payout ratio, and equity to assets ratio is presented in Item 6, Selected Financial Data.

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LCNB CORP. AND SUBSIDIARIES

Item 1A.  Risk Factors

There are risks inherent in LCNB’s operations, many beyond management’s control, which may adversely affect its financial condition and results from operations and should be considered in evaluating the Company. Credit, market, operational, liquidity, interest rate and other risks are described elsewhere in this report. Other risk factors may include the items described below.

New capital requirements could adversely affect LCNB’s capital ratios

On July 2, 2013, the Federal Reserve Board approved the final rules implementing the Basel Committee on Banking Supervision’s capital guidelines for U.S. bank holding companies as well as state banks that are members of the Federal Reserve System and savings and loan holding companies (commonly known as Basel III). On July 9, 2013, the OCC adopted the same rules for national banks and federal savings associations, and the FDIC approved the same provisions, as an interim final rule, for state nonmember banks and state savings associations.

Under the final rules, minimum requirements will increase for both the quantity and quality of capital held by banks and savings associations. The rules include a new common equity Tier 1 capital to risk-weighted assets ratio of 4.5% and a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets. The final rules also raise the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0% and require a minimum leverage ratio of 4.0%.

The phase-in period for the final rules began for LCNB on January 1, 2015, with full compliance with all of the final rules' requirements phased in over a multi-year schedule through January 1, 2019. While management expects that LCNB's capital ratios under Basel III will continue to exceed the well capitalized minimum capital requirements, there can be no assurance that such will be the case. If LCNB is unable to meet or exceed the applicable minimum capital requirements, it may become subject to supervisory actions ranging in severity from losing its financial holding company status, to being precluded from making acquisitions or engaging in new activities or becoming subject to informal or formal regulatory enforcement actions.

LCNB’s earnings are significantly affected by market interest rates.

Fluctuations in interest rates may negatively impact LCNB’s profitability.  A primary source of income from operations is net interest income, which is equal to the difference between interest income earned on loans and investment securities and the interest paid for deposits and other borrowings. These rates are highly sensitive to many factors beyond LCNB’s control, including general economic conditions, the slope of the yield curve (that is, the relationship between short and long-term interest rates), and the monetary and fiscal policies of the United States Federal government.  LCNB expects the current level of interest rates and the current slope of the yield curve will cause further downward pressure on its net interest margin.

Increases in general interest rates could have a negative impact on LCNB’s results of operations by reducing the ability of borrowers to repay their current loan obligations.  Some residential real estate mortgage loans, most home equity line of credit loans, and many of LCNB’s commercial loans have adjustable rates.  Borrower inability to make scheduled loan payments due to a higher loan cost could result in increased loan defaults, foreclosures, and write-offs and may necessitate additions to the allowance for loan losses.  In addition, increases in the general level of interest rates may decrease the demand for new consumer and commercial loans, thus limiting LCNB’s growth and profitability.  A general increase in interest rates may also result in deposit disintermediation, which is the flow of deposits away from banks and other depository institutions into direct investments that have the potential for higher rates of return, such as stocks, bonds, and mutual funds.   If this occurs, LCNB may have to rely more heavily on borrowings as a source of funds in the future, which could negatively impact its net interest margin.

Gains from sales of mortgage loans may experience significant volatility.

Gains from sales of mortgage loans are highly influenced by the level and direction of mortgage interest rates, real estate activity, and refinancing activity.  Current historically low market interest rates created a refinancing demand for residential fixed-rate mortgage loans.  The increased volume of refinancing activity increased gains from sales of mortgage loans as LCNB sold most of these loans to the Federal Home Loan Mortgage Corporation.  An increase in market interest rates may decrease the demand for refinanced loans and decrease the gains from sales of mortgage loans recognized in LCNB’s consolidated statements of income.  Gains from sales of mortgage loans may also be impacted by changes in LCNB’s strategy to manage its residential mortgage portfolio. For example, LCNB may occasionally change the proportion of loan originations that are sold in the secondary market and instead add a greater proportion to its loan portfolio.

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LCNB CORP. AND SUBSIDIARIES

Banking competition in Southwestern and South Central Ohio is intense.

LCNB faces strong competition for deposits, loans, trust accounts, and other services from other banks, savings banks, credit unions, mortgage brokers, and other financial institutions.  Many of LCNB’s competitors include major financial institutions that have been in business for many years and have established customer bases, numerous branches, and substantially higher regulatory lending limits. Competitors in the Southwestern and South Central Ohio areas include U.S. Bank, PNC Bank, Fifth Third Bank, Chase, KeyBank, Park National Bank, Huntington National Bank, and First Financial Bank. In addition, credit unions are growing larger due to more flexible membership requirement regulations and are offering more financial services than they legally could in the past.

LCNB also competes with numerous real estate brokerage firms, some owned by realty companies, for residential real estate mortgage loans.  Incentives offered by captive finance companies owned by the major automobile companies have limited the banking industry’s opportunities for growth in the new automobile loan market.  The banking industry now competes with brokerage firms and mutual fund companies for funds that would have historically been held as bank deposits.  Technology has lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems.  Many of these competitors have fewer regulatory constraints and may have lower cost structures.

If LCNB is unable to attract and retain loan, deposit, brokerage, and trust customers, its growth and profitability levels may be negatively impacted.

Economic conditions in Southwestern and South Central Ohio could adversely affect LCNB’s financial condition and results of operations.

LCNB conducts its operations from offices that are located in nine Southwestern and South Central Ohio counties, from which substantially all of its customer base is drawn. Because of this geographic concentration of operations and customer base, LCNB's financial performance is heavily influenced by economic conditions in these areas. Any material deterioration in economic conditions in these markets could have material direct or indirect adverse impacts on LCNB's customers and on LCNB. Such deterioration could increase the number of customers experiencing financial distress, negatively impacting their ability to obtain new loans or to repay existing loans. As a result, LCNB may experience increases in the levels of impaired loans, increased charge-offs, and increased provisions for loan losses. Deteriorating economic conditions may also affect the ability of depositors to maintain or add to deposit balances and may affect the demand for loans, trust, brokerage, and other products and services offered by LCNB. Such losses and decreased demand could have material adverse affects on LCNB's financial position, results of operations, and cash flows.

The allowance for loan losses may be inadequate.

The provision for loan losses is determined by management based upon its evaluation of the amount needed to maintain the allowance for loan losses at a level considered appropriate in relation to the estimated 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, the fair value of any underlying collateral, borrowers’ cash flows, and current economic conditions that may affect borrowers’ ability to make payments.  Increases in the allowance result in an expense for the period.   By its nature, the evaluation is imprecise and requires significant judgment.  Actual results may vary significantly from management’s assumptions.  If, as a result of general economic conditions or a decrease in asset quality, management determines that additional increases in the allowance for loan losses are necessary, LCNB will incur additional expenses.

LCNB’s loan portfolio includes a substantial amount of commercial and industrial loans and commercial real estate loans, which may have more risks than residential or consumer loans.

LCNB’s commercial and industrial and commercial real estate loans comprise a substantial portion of its total loan portfolio. These loans generally carry larger loan balances and involve a greater degree of financial and credit risk than home equity, residential mortgage, or consumer loans. The increased financial and credit risk associated with these types of loans is a result of several factors, including the concentration of principal in a limited number of loans, the size of loan balances, the effects of general economic conditions on income-producing properties, and the increased difficulty of evaluating and monitoring these types of loans.

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LCNB CORP. AND SUBSIDIARIES

The repayment of loans secured by commercial real estate is often dependent upon the successful operation, development, or sale of the related real estate or commercial business and may, therefore, be subject to adverse conditions in the real estate market or economy. If the cash flow from operations is reduced, the borrower’s ability to repay the loan may be impaired. In such cases, LCNB may take one or more actions to protect its financial interest in the loan.  Such actions may include foreclosure on the real estate securing the loan, taking possession of other collateral that may have been pledged as security for the loan, or modifying the terms of the loan.  If foreclosed on, commercial real estate is often unique and may not be as salable as a residential home.

The fair value of LCNB’s investments could decline.

Most of LCNB’s investment securities portfolio is designated as available-for-sale.  Accordingly, unrealized gains and losses, net of tax, in the estimated fair value of the available-for-sale portfolio is recorded as other comprehensive income, a separate component of shareholders’ equity. The fair value of LCNB’s investment portfolio may decline, causing a corresponding decline in shareholders’ equity.  Management believes that several factors will affect the fair values of the investment portfolio including, but not limited to, changes in interest rates or expectations of changes, the degree of volatility in the securities markets, inflation rates or expectations of inflation, and the slope of the interest rate yield curve. These and other factors may impact specific categories of the portfolio differently and the effect any of these factors may have on any specific category of the portfolio cannot be predicted.

Many state and local governmental authorities have experienced deterioration of financial condition in recent years due to declining tax revenues, increased demand for services, and various other factors. To the extent LCNB has any municipal securities in its portfolio from issuers who are experiencing deterioration of financial condition or who may experience future deterioration of financial condition, the value of such securities may decline and could result in other-than-temporary impairment charges, which could have an adverse effect on LCNB’s financial condition and results of operations.  Additionally, a general, industry-wide decline in the fair value of municipal securities could significantly affect LCNB’s financial condition and results of operations.

Changes in income tax laws or interpretations or in accounting standards could materially affect LCNB’s financial condition or results of operations.

Changes in income tax laws could be enacted, or interpretations of existing income tax laws could change, causing an adverse effect to LCNB’s financial condition or results of operations. Similarly, new accounting standards may be issued by the Financial Accounting Standards Board (the “FASB”) or existing standards revised, changing the methods for preparing financial statements. These changes are not within LCNB’s control and may significantly impact its reported financial condition and results of operations. 

LCNB is subject to environmental liability risk associated with lending activities.

A significant portion of the Bank’s loan portfolio is secured by real property. During the ordinary course of business, the Bank may foreclose on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, the Bank may be liable for remediation costs, as well as for personal injury and property damage. Environmental laws may require the Bank to incur substantial expenses and may materially reduce the affected property’s value or limit the Bank’s ability to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase the Bank’s exposure to environmental liability. Although the Bank has policies and procedures to perform an environmental review before initiating any foreclosure action on real property, these reviews may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on LCNB’s financial condition and results of operations.

The banking industry is highly regulated.

LCNB is subject to regulation, supervision, and examination by the Federal Reserve Board and the Bank is subject to regulation, supervision, and examination by the OCC.   LCNB and the Bank are also subject to regulation and examination by the FDIC as the deposit insurer.  The CFPB is responsible for most consumer protection laws and has broad authority, with certain exceptions, to regulate financial products offered by banks.  Federal and state laws and regulations govern numerous matters including, but not limited to, changes in the ownership or control of banks, maintenance of adequate capital, permissible business operations, maintenance of deposit insurance, protection of customer financial privacy, the level of reserves held against deposits, restrictions on dividend payments, the making of loans, and the acceptance of deposits.  See the previous section titled “Supervision and Regulation” for more information on this subject.

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LCNB CORP. AND SUBSIDIARIES

Federal regulators may initiate various enforcement actions against a financial institution that violates laws or regulations or that operates in an unsafe or unsound manner.  These enforcement actions may include, but are not limited to, the assessment of civil money penalties, the issuance of cease-and-desist or removal orders, and the imposition of written agreements.

Proposals to change the laws governing financial institutions are periodically introduced in Congress and proposals to change regulations are periodically considered by the regulatory bodies.  Such future legislation and/or changes in regulations could increase or decrease the cost of doing business, limit or expand permissible activities, or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions.  The likelihood of any major changes in the future and their effects are impossible to predict.

Federal income tax reform could have unforeseen effects on our financial condition and results of operations.

On December 22, 2017, the President of the United States signed into law H.R. 1, originally known as the “Tax Cuts and Jobs Act.” The Company is still in the process of analyzing the Tax Cuts and Jobs Act and its possible effects on the Company. The Tax Cuts and Jobs Act includes a number of provisions, including the lowering of the U.S. corporate tax rate from 35 percent to 21 percent, effective January 1, 2018. There are also provisions that may partially offset the benefit of such rate reduction. Financial statement impacts include adjustments for, among other things, the re-measurement of deferred tax assets and liabilities. While there are benefits, there is also substantial uncertainty regarding the details of U.S. Tax Reform. The intended and unintended consequences of the Tax Cuts and Jobs Act on our business and on holders of our common shares is uncertain and could be adverse. The Company anticipates that the impact of the Tax Cuts and Jobs Act may be material to our business, financial condition and results of operations.

FDIC deposit insurance assessments may materially increase in the future.

Deposits of LCNB are insured up to statutory limits by the Federal Deposit Insurance Corporation (FDIC) and, accordingly, LCNB and other banks and financial institutions pay quarterly premiums to the FDIC to maintain the Deposit Insurance Fund. The likelihood and extent of future rate increases are indeterminable.

Future growth and expansion opportunities may contain risks.

From time to time LCNB may seek to acquire other financial institutions or parts of those institutions or may open new branch offices.  It may also consider and enter into new lines of business or offer new products or services.  Such activities involve a number of risks, which may include potential inaccuracies in estimates and judgments used to evaluate the expansion opportunity, diversion of management and employee attention, lack of experience in a new market or product or service, and difficulties in integrating a future acquisition or introducing a new product or service.  There is no assurance that such growth or expansion activities will be successful or that they will achieve desired profitability levels.

The financial services industry, as well as the broader economy, may be subject to new legislation, regulation, and government policy. 

At this time, it is difficult to predict the legislative and regulatory changes that will result from the combination of a new President of the United States and the first year since 2010 in which both Houses of Congress and the White House have majority memberships from the same political party. In recent years, however, both the new President and senior members of the House of Representatives have advocated for significant reduction of financial services regulation, to include amendments to the Dodd-Frank Act and structural changes to the CFPB. The new Administration and Congress also may cause broader economic changes due to changes in governing ideology and governing style. New appointments to the Board of Governors of the Federal Reserve could affect monetary policy and interest rates and changes in fiscal policy could affect broader patterns of trade and economic growth. Future legislation, regulation, and government policy could affect the banking industry as a whole, including LCNB's business and results of operations, in ways that are difficult to predict. In addition, LCNB's results of operations could be adversely affected by changes in the way in which existing statutes and regulations are interpreted or applied by courts and government agencies.

LCNB’s controls and procedures may fail or be circumvented.

Management regularly reviews and updates LCNB’s internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of LCNB’s controls and procedures or failure to comply with regulations related to its controls and procedures could have a material adverse effect on LCNB’s business, results of operations, and financial condition.

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LCNB CORP. AND SUBSIDIARIES

LCNB’s information systems may experience an interruption, cyberattack, or other breach in security.

LCNB relies heavily on communications and information systems to conduct its business. Significant resources are devoted to maintaining and regularly updating LCNB's data systems, there can be no assurance that these security measures will provide absolute security. Any failure, interruption, cyberattack, or other breach in security of these systems could result in failures or disruptions in LCNB’s customer relationship management, general ledger, deposit, loan, and other systems. While LCNB has policies and procedures designed to prevent or limit the effect of the failure, interruption, cyberattack, or other security breach of its information systems, there can be no assurance that any such occurrences will not occur or, if they do occur, that they will be adequately addressed. The occurrence of any failures, interruptions, cyberattacks, or other security breaches of LCNB’s information systems could significantly disrupt LCNB's operations, allow misappropriation of LCNB's confidential information, allow misappropriation of customer confidential information, damage LCNB’s reputation, result in a loss of customer business, subject LCNB to additional regulatory scrutiny, or expose LCNB to significant civil litigation and possible financial liability, any of which could have a material adverse effect on its financial condition and results of operations.

LCNB continually encounters technological change.

The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. LCNB’s future success depends, in part, upon its ability to address customer needs by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in LCNB’s operations. LCNB may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to its customers. Failure to successfully keep pace with technological change affecting the financial services industry could negatively affect LCNB’s growth, revenue and profit.

Emergence of nonbank alternatives to the financial system.

Consumers may decide not to use banks to complete their financial transactions. Technology and other changes, including the emergence of “Fintech Companies,” are allowing parties to complete financial transactions through alternative methods that historically have involved banks. For example, consumers can complete transactions, such as paying bills and/or transferring funds, directly without the assistance of banks. The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. The loss of these revenue streams and the lower cost of deposits as a source of funds could have a material adverse effect on our financial condition and results of operations.

Risk factors related to LCNB’s trust business.

Competition for trust business is intense.  Competitors include other commercial bank and trust companies, brokerage firms, investment advisory firms, mutual fund companies, accountants, and attorneys.

LCNB’s trust business is directly affected by conditions in the debt and equity securities markets.  The debt and equity securities markets are affected by, among other factors, domestic and foreign economic conditions and the monetary and fiscal policies of the United States Federal government, all of which are beyond LCNB’s control.  Changes in economic conditions may directly affect the economic performance of the trust accounts in which clients’ assets are invested.  A decline in the fair value of the trust accounts caused by a decline in general economic conditions directly affects LCNB’s trust fee income because such fees are primarily based on the fair value of the trust accounts.  In addition, a sustained decrease in the performance of the trust accounts or a lack of sustained growth may encourage clients to seek alternative investment options.

The management of trust accounts is subject to the risk of mistaken distributions, poor investment choices, and miscellaneous other incorrect decisions.  Such mistakes may give rise to surcharge actions by beneficiaries, with damages substantially in excess of the fees earned from management of the accounts.

LCNB’s ability to pay cash dividends is limited.

LCNB is dependent upon the earnings of the Bank for funds to pay dividends on its common shares.  The payment of dividends by LCNB and the Bank is subject to certain regulatory restrictions.  As a result, any payment of dividends in the future will be dependent, in large part, on the ability of LCNB and the Bank to satisfy these regulatory restrictions and on the Bank’s earnings, capital levels, financial condition, and other factors.  Although LCNB’s financial earnings and financial condition have allowed it to declare and pay periodic cash dividends to shareholders, there can be no assurance that the current dividend policy or the amount of dividend distributions will continue in the future.

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LCNB CORP. AND SUBSIDIARIES

Item 1B. Unresolved Staff Comments

Not applicable.

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LCNB CORP. AND SUBSIDIARIES

Item 2.  Properties

The Bank conducts its business from the following offices:

	Name of Office	Address	County
1.	Main Office	2 North Broadway Lebanon, Ohio  45036	Warren	Owned
2.	Auto Bank	Silver and Mechanic Streets Lebanon, Ohio  45036	Warren	Owned
3.	Barron Street Office	1697 North Barron Street Eaton, Ohio  45320	Preble	Leased
4.	Bridge Street Office	1240 North Bridge Street Chillicothe, Ohio  45601	Ross	Owned
5.	Brookville Office	225 West Upper Lewisburg Salem Road Brookville, Ohio 45309	Montgomery	Owned
6.	Centerville Office	9605 Dayton-Lebanon Pike Centerville, Ohio 45458	Montgomery	Owned
7.	Chillicothe Office	33 West Main Street Chillicothe, Ohio  45601	Ross	Owned
8.	Colerain Township Office	3209 West Galbraith Road Cincinnati, Ohio 45239	Hamilton	Owned
9.	Columbus Avenue Office	730 Columbus Avenue Lebanon, Ohio  45036	Warren	Owned
10.	Eaton Office	110 West Main Street Eaton, Ohio  45320	Preble	Owned
11.	Fairfield Office	765 Nilles Road Fairfield, Ohio  45014	Butler	Leased
12.	Frankfort Office	Springfield and Main Streets Frankfort, Ohio  45628	Ross	Owned
13.	Goshen Office	6726 Dick Flynn Blvd. Goshen, Ohio  45122	Clermont	Owned
14.	Hamilton Office	794 NW Washington Blvd. Hamilton, Ohio  45013	Butler	Owned
15.	Hunter Office	3878 State Route 122 Franklin, Ohio  45005	Warren	Owned
16.	Lewisburg Office	522 South Commerce Street Lewisburg, Ohio  45338	Preble	Owned
17.	Loveland Office	500 Loveland-Madeira Road Loveland, Ohio 45140	Hamilton	Owned

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LCNB CORP. AND SUBSIDIARIES

	Name of Office	Address	County
18.	Maineville Office	7795 South State Route 48 Maineville, Ohio 45039	Warren	Owned
19.	Mason/West Chester Office	1050 Reading Road Mason, Ohio  45040	Warren	Owned
20.	Middletown Office	4441 Marie Drive Middletown, Ohio  45044	Butler	Owned
21.	Monroe Office	101 Clarence F. Warner Drive Monroe, Ohio  45050	Butler	Owned
22.	New Paris Office	201 South Washington Street New Paris, Ohio  45347	Preble	Owned
23.	Oakwood Office	2705 Far Hills Avenue Oakwood, Ohio  45419	Montgomery	(2)
24.	Otterbein Office	Otterbein Retirement Community State Route 741 Lebanon, Ohio  45036	Warren	Leased
25.	Oxford Office (1)	30 West Park Place Oxford, Ohio  45056	Butler	(2)
26.	Rochester/Morrow Office	Route 22-3 at 123 Morrow, Ohio  45152	Warren	Owned
27.	South Lebanon Office	603 Corwin Nixon Blvd. South Lebanon, Ohio  45065	Warren	Owned
28.	Springboro/Franklin Office	525 West Central Avenue Springboro, Ohio  45066	Warren	Owned
29.	Warrior Office	Lebanon High School 1916 Drake Road Lebanon, Ohio  45036	Warren	Leased
30.	Washington Court House Office	100 Crossings Drive Washington Court House, Ohio  43160	Fayette	Owned
31.	Waynesville Office	9 North Main Street Waynesville, Ohio  45068	Warren	Owned
32.	West Alexandria Office	55 East Dayton Street West Alexandria, Ohio  45381	Preble	Owned
33.	Western Avenue Office	1006 Western Avenue Chillicothe, Ohio  45601	Ross	Owned
34.	Wilmington Office	1243 Rombach Avenue Wilmington, Ohio  45177	Clinton	Owned
35.	Loan Production Office	1500 West Third Ave., Suite 205 & 209 Grandview Heights, Ohio 43212	Franklin	Leased

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LCNB CORP. AND SUBSIDIARIES

	Name of Office	Address	County
36.	Operations Center	105 North Broadway Lebanon, Ohio  45036	Warren	Owned

(1) Excess space in this office is leased to third parties.

(2) The Bank owns the Oakwood and Oxford office buildings and leases the land.

Item 3.  Legal Proceedings

Except for routine litigation incidental to its businesses, LCNB is not a party to any material pending legal proceedings and none of its property is the subject of any material proceedings.

Item 4.  Mine Safety Disclosures

Not Applicable.

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LCNB CORP. AND SUBSIDIARIES

PART II

Item 5.  Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities.

LCNB had approximately 962 registered holders of its common stock as of December 31, 2017.  The number of shareholders includes banks and brokers who act as nominees, each of whom may represent more than one shareholder.  LCNB’s stock trades on the NASDAQ Capital Market exchange under the symbol “LCNB.”  

Trade prices for shares of LCNB Common Stock and cash dividends per share declared and paid are set forth below.  The trade prices shown below are interdealer without retail markups, markdowns, or commissions.

	2017				2016
	High		Low	Dividends Declared	High	Low	Dividends Declared
First Quarter	$	24.35	20.80	0.16	17.75	15.51	0.16
Second Quarter	23.90		19.00	0.16	17.24	15.69	0.16
Third Quarter	21.85		18.05	0.16	19.13	15.73	0.16
Fourth Quarter	22.84		19.40	0.16	25.00	16.55	0.16
Total dividends declared				0.64			0.64

It is expected that LCNB will continue to pay dividends on a similar schedule, to the extent permitted by business and potential factors beyond management's control.

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, as defined, for the current year plus retained net income for the previous two calendar years. Prior approval from the OCC, the Bank’s primary regulator, would be 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 ordinary dividends to LCNB without needing to request approval.

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

On April 17, 2001, LCNB's Board of Directors authorized three separate stock repurchase programs, two of which continue to be in effect – the “Market Repurchase Program and the “Private Sale Repurchase Program.”  Any shares purchased will be held for future corporate purposes.

Under the Market Repurchase Program, LCNB was originally authorized to purchase up to 200,000 shares of its stock through market transactions with a selected stockbroker.  On November 14, 2005, the Board of Directors extended the Market Repurchase Program by increasing the shares authorized for repurchase to 400,000 total shares.  Through December 31, 2017, 290,444 shares have been purchased under this program.  No shares were purchased under the Market Repurchase Program during 2017 and 2016.

The Private Sale Repurchase Program is available to shareholders who wish to sell large blocks of stock at one time.  Because LCNB's common stock is not widely traded, a shareholder releasing large blocks may not be able to readily sell all shares through normal procedures.  Purchases of blocks will be considered on a case-by-case basis and will be made at prevailing market prices.  There is no limit to the number of shares that may be purchased under this program.  A total of 466,018 shares have been purchased under this program since its inception through December 31, 2017.  No shares were purchased under the Private Sale Repurchase Program during 2017 and 2016.

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

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LCNB CORP. AND SUBSIDIARIES

The 2015 Ownership Incentive Plan (the "2015 Plan") was approved 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. This plan provides for the issuance of up to 450,000 shares and will terminate on April 28, 2025, unless earlier terminated by the Compensation Committee.

The following table shows information relating to stock options outstanding under the 2002 Plan and 2015 Plan at December 31, 2017:

Plan Category	Number of Securities to be Issued upon Exercise of Outstanding Options	Weighted Average Exercise Price of Outstanding Options		Number of Securities Remaining Available for Future Issuance
Equity compensation plans approved by security holders	20,265	$	11.42	429,935
Equity compensation plans not approved by security holders	—	—		—
Total	20,265	$	11.42	429,935

-25-

LCNB CORP. AND SUBSIDIARIES

The graph below provides an indicator of cumulative total shareholder returns for LCNB as compared with the NASDAQ Composite, the SNL Midwest OTC-BB and Pink Sheet Banks, and the SNL Midwest Bank indexes.  This graph covers the period from December 31, 2012 through December 31, 2017.  The cumulative total shareholder returns included in the graph reflect the returns for the shares of common stock of LCNB.  The information provided in the graph assumes that $100 was invested on December 31, 2012 in LCNB common stock, the NASDAQ Composite, and the SNL Midwest Bank Index and that all dividends were reinvested.

			Period Ending
Index	12/31/2012		12/31/2013	12/31/2014	12/31/2015	12/31/2016	12/31/2017
LCNB Corp.	$	100.00	135.14	118.72	134.15	197.63	179.39
NASDAQ Composite Index	$	100.00	140.12	160.78	171.97	187.22	242.71
SNL Midwest Bank index	$	100.00	136.91	148.84	151.10	201.89	216.95
Source: S&P Global Market Intelligence
© 2017

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LCNB CORP. AND SUBSIDIARIES

Item 6.  Selected Financial Data

The following represents selected consolidated financial data of LCNB for the years ended December 31, 2013 through 2017 and are derived from LCNB's consolidated financial statements.  Certain prior year data presented in this table have been reclassified to conform with the current year presentation.  This data should be read in conjunction with the consolidated financial statements and the notes thereto included in Item 8 of this Form 10-K and Management's Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures about Market Risk included in Items 7 and 7A, respectively, of this Form 10-K, and are qualified in their entirety thereby and by other detailed information elsewhere in this Form 10-K.

	For the Years Ended December 31,
	2017			2016		2015		2014		2013
	(Dollars in thousands, except per share data)
Income Statement:
Interest income	$	44,463		43,750		42,659		39,477		33,497
Interest expense	3,599			3,504		3,328		3,590		4,065
Net interest income	40,864			40,246		39,331		35,887		29,432
Provision for loan losses	215			913		1,366		930		588
Net interest income after provision for loan losses	40,649			39,333		37,965		34,957		28,844
Non-interest income	10,458			10,853		10,123		9,142		9,090
Non-interest expenses	33,863			33,261		32,392		30,844		26,212
Income before income taxes	17,244			16,925		15,696		13,255		11,722
Provision for income taxes	4,272			4,443		4,222		3,386		2,942
Net income	$	12,972		12,482		11,474		9,869		8,780
Dividends per common share	$	0.64		0.64		0.64		0.64		0.64
Earnings per common share:
Basic	1.30			1.26		1.18		1.06		1.12
Diluted	1.29			1.25		1.17		1.05		1.10
Balance Sheet:
Securities	$	317,413		368,032		406,981		314,074		279,021
Loans, net	845,657			816,228		767,809		695,835		570,766
Total assets	1,295,638			1,306,799		1,280,531		1,108,066		932,338
Total deposits	1,085,821			1,110,905		1,087,160		946,205		785,761
Short-term borrowings	47,000			42,040		37,387		16,645		8,655
Long-term debt	303			598		5,947		11,357		12,102
Total shareholders' equity	150,271			142,944		140,108		125,695		118,873
Selected Financial Ratios and Other Data:
Return on average assets	0.99		%	0.96	%	0.94	%	0.88	%	0.93	%
Return on average equity	8.74		%	8.60	%	8.43	%	8.04	%	9.02	%
Equity-to-assets ratio	11.60		%	10.94	%	10.94	%	11.34	%	12.75	%
Dividend payout ratio	49.23		%	50.79	%	54.24	%	60.38	%	57.14	%
Net interest margin, fully taxable equivalent	3.58		%	3.51	%	3.64	%	3.66	%	3.57	%

Eaton National merged with and into LCNB as of the close of business on January 24, 2014. As of the date of the merger, LCNB recorded additional loans of $115.9 million and additional deposits of $165.3 million.

BNB merged with and into LCNB as of the close of business on April 30, 2015. As of the date of the merger, LCNB recorded additional loans of $34.7 million and additional deposits of $99.1 million.

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LCNB CORP. AND SUBSIDIARIES

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Introduction

The following is management's discussion and analysis of the consolidated financial condition and consolidated results of operations of LCNB.  It is intended to amplify certain financial information regarding LCNB and should be read in conjunction with the consolidated financial statements and related notes contained in the 2017 Annual Report to Shareholders.

Overview

Net income for 2017 was $12,972,000 (basic and diluted earnings per share of $1.30 and $1.29, respectively), compared to $12,482,000 (basic and diluted earnings per share of $1.26 and $1.25) in 2016 and $11,474,000 (basic and diluted earnings per share of $1.18 and $1.17) in 2015.

The following items significantly affected earnings for 2017:

• Net gain on sales of securities was significantly greater in 2016 as compared to 2017 and 2015 due primarily to market rates at the time of the sales. In addition, the amount of securities sold in 2017 was less than the amounts sold in 2016 and 2015.

• Other real estate owned expense was greater in 2016 and 2015 as compared to 2017 because of valuation writedowns and losses on sales recognized during 2016 and 2015. Other real estate owned properties held during 2017 were minimal.

• Other non-interest expense for 2017 included $154,000 in organizational costs for LCNB Risk Management, Inc. and $113,000 in losses from sales of fixed assets, primarily due to the sale of a closed office building.

• As a result of the Tax Cuts and Jobs Act that was signed into law on December 22, 2017, LCNB revalued its net deferred tax liability position to reflect the reduction in its federal corporate income tax rate from 34% to 21%. This revaluation resulted in a one-time income tax benefit of approximately $224,000, or $0.02 of basic and diluted earnings per common share for the year ended December 31, 2017.

Net Interest Income

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 years indicated, 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.

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LCNB CORP. AND SUBSIDIARIES

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

	Years ended December 31,
	2017						2016						2015
	Average Outstanding Balance			Interest Earned/ Paid	Average Yield/ Rate		Average Outstanding Balance			Interest Earned/ Paid	Average Yield/ Rate		Average Outstanding Balance			Interest Earned/ Paid	Average Yield/ Rate
	(Dollars in thousands)
Loans (1)	$	822,452		36,571	4.45	%	$	792,526		35,600	4.49	%	$	740,626		35,285	4.76	%
Federal funds sold	—			—	—	%	—			—	—	%	452			1	0.22	%
Interest-bearing demand deposits	7,972			88	1.10	%	12,394			59	0.48	%	12,245			30	0.24	%
Federal Reserve Bank stock	2,732			164	6.00	%	2,732			164	6.00	%	2,495			152	6.09	%
Federal Home  Loan Bank stock	3,638			182	5.00	%	3,638			146	4.01	%	3,638			146	4.01	%
Investment securities:
Taxable	208,918			4,328	2.07	%	243,559			4,582	1.88	%	245,410			4,197	1.71	%
Non-taxable (2)	143,394			4,815	3.36	%	140,692			4,862	3.46	%	115,215			4,315	3.75	%
Total earning assets	1,189,106			46,148	3.88	%	1,195,541			45,413	3.80	%	1,120,081			44,126	3.94	%
Non-earning assets	123,800						112,909						107,919
Allowance for loan losses	(3,405		)				(3,318		)				(2,888		)
Total assets	$	1,309,501					$	1,305,132					$	1,225,112
Savings deposits	$	645,471		594	0.09	%	$	654,891		652	0.10	%	$	608,925		545	0.09	%
IRA and time certificates	205,540			2,784	1.35	%	217,228			2,788	1.28	%	219,562			2,464	1.12	%
Short-term borrowings	23,976			209	0.87	%	17,952			38	0.21	%	15,105			24	0.16	%
Long-term debt	421			12	2.85	%	826			26	3.15	%	6,177			295	4.78	%
Total interest-bearing liabilities	875,408			3,599	0.41	%	890,897			3,504	0.39	%	849,769			3,328	0.39	%
Demand deposits	274,855						259,060						230,608
Other liabilities	10,795						10,014						8,590
Capital	148,443						145,161						136,145
Total  liabilities  and capital	$	1,309,501					$	1,305,132					$	1,225,112
Net interest rate spread  (3)					3.47	%					3.41	%					3.55	%
Net interest income and net interest margin on a tax equivalent basis (4)				42,549	3.58	%				41,909	3.51	%				40,798	3.64	%
Ratio of interest-earning assets to interest-bearing liabilities	135.83		%				134.20		%				131.81		%

(1) Includes non-accrual 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 of 34%.

(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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LCNB CORP. AND SUBSIDIARIES

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

The following table presents the changes in 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 years indicated.  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.

	For the years ended December 31,
	2017 vs. 2016							2016 vs. 2015
	Increase (decrease) due to							Increase (decrease) due to
	Volume			Rate		Total		Volume		Rate		Total
	(In thousands)
Interest income attributable to:
Loans (1)	$	1,334		(363	)	971		2,395		(2,080	)	315
Federal funds sold	—			—		—		(1	)	—		(1	)
Interest-bearing demand deposits	(27		)	56		29		—		29		29
Federal Reserve Bank stock	—			—		—		14		(2	)	12
Federal Home Loan Bank stock	—			36		36		—		—		—
Investment securities:
Taxable	(690		)	436		(254	)	(32	)	417		385
Non-taxable (2)	92			(139	)	(47	)	900		(353	)	547
Total interest income	709			26		735		3,276		(1,989	)	1,287
Interest expense attributable to:
Savings deposits	(9		)	(49	)	(58	)	43		64		107
IRA and time certificates	(154		)	150		(4	)	(26	)	350		324
Short-term borrowings	17			154		171		5		9		14
Long-term debt	(12		)	(2	)	(14	)	(193	)	(76	)	(269	)
Total interest expense	(158		)	253		95		(171	)	347		176
Net interest income	$	867		(227	)	640		3,447		(2,336	)	1,111

(1) Non-accrual loans, if any, are included in average loan balances.

(2) Change in interest income from non-taxable investment securities is computed based on interest income determined on a taxable-equivalent yield basis.  Interest income has been divided by a factor comprised of the complement of the incremental tax rate of 34%.

2017 vs. 2016.  Net interest income on a fully tax-equivalent basis for 2017 totaled $42,549,000, an increase of $640,000 from 2016.  The increase resulted from an increase in total taxable-equivalent interest income of $735,000, slightly offset by an increase in total interest expense of $95,000.

The increase in total interest income was due primarily to a $971,000 increase in loan interest income caused by a $29.9 million increase in average loans, partially offset by a 4 basis point (a basis point equals 0.01%) decrease in the average rate earned on loans. Partially offsetting the increase in loan interest income was a $254,000 decrease in interest income from taxable investment securities and a $47,000 decrease in taxable-equivalent interest income from non-taxable investment securities. Interest income from taxable investment securities decreased due to a $34.6 million decrease in average taxable investment securities, partially offset by a 19 basis point increase in the average rate earned on these securities. Interest income from non-taxable investment securities decreased due to a 10 basis point decrease in the average rate earned on these securities, partially offset by a $2.7 million increase in non-taxable investment securities.

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LCNB CORP. AND SUBSIDIARIES

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

The increase in total interest expense was primarily due to a $171,000 increase in interest paid on short-term borrowings, partially offset by decreases in interest paid on savings deposits, IRA and time certificates, and long-term debt. Short-term borrowings increased due to a 66 basis point increase in the average rate paid and, secondarily, due to a $6.0 million increase in the average balance of borrowings outstanding. Interest paid on savings deposits decreased due to a 1 basis point decrease in the average rate paid and due to a $9.4 million decrease in average deposits outstanding. IRA and time certificates decreased due to an $11.7 million decrease in average certificates outstanding, largely offset by a 7 basis point increase in the average rate paid. Long-term debt decreased primarily due to a $405,000 decrease in average debt outstanding and to a 30 basis point decrease in the average rate paid.

2016 vs. 2015.  Net interest income on a fully tax-equivalent basis for 2016 totaled $41,909,000, an increase of $1,111,000 from 2015.  The increase resulted from an increase in total taxable-equivalent interest income of $1,287,000, slightly offset by an increase in total interest expense of $176,000.

The increase in taxable-equivalent interest income was due to a $75.5 million increase in total average interest-earning assets, slightly offset by a 14 basis point decrease in the average rate earned on interest-earning assets.  The increase in total average interest-earning assets reflects an increase of $51.9 million in average loans and a $25.5 million increase in non-taxable investment securities. The decrease in the average rate earned was primarily due to general decreases in market rates.

Interest expense increased primarily due to a 16 basis point increase in the average rate paid on IRA and time certificates and a 1 basis point increase in the average rate paid on savings deposits, partially offset by a 163 basis point decrease in the rate paid on long-term debt. The rate variance was partially offset by a $5.4 million decrease in average long-term debt. The decrease in the average rate paid on long-term debt and the decrease in the average balance of long-term debt was due to the pre-payment in full during the first quarter of 2016 of a $5.0 million borrowing from the Federal Home Loan Bank of Cincinnati bearing an interest rate of 5.25%.  The borrowing was pre-paid to reduce future interest expense.

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LCNB CORP. AND SUBSIDIARIES

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Provisions and Allowance for Loan Losses

The following table presents the total loan loss provision and the other changes in the allowance for loan losses for the years 2013 through 2017:

	2017			2016		2015		2014		2013
	(Dollars in thousands)
Balance – Beginning of year	$	3,575		3,129		3,121		3,588		3,437
Loans charged off:
Commercial and industrial	—			234		100		261		119
Commercial, secured by real estate	462			185		1,133		573		58
Residential real estate	225			127		304		652		244
Consumer	90			85		52		129		181
Agricultural	—			—		67		—		—
Other loans, including deposit overdrafts	138			119		74		79		67
Total loans charged off	915			750		1,730		1,694		669
Recoveries:
Commercial and industrial	99			26		7		42		4
Commercial, secured by real estate	113			98		96		63		26
Residential real estate	140			52		107		40		31
Consumer	114			53		60		108		127
Agricultural	—			—		67		—		—
Other loans, including deposit overdrafts	62			54		35		44		44
Total recoveries	528			283		372		297		232
Net charge offs	387			467		1,358		1,397		437
Provision charged to operations	215			913		1,366		930		588
Balance - End of year	$	3,403		3,575		3,129		3,121		3,588
Ratio of net charge-offs during the period to average loans outstanding	0.05		%	0.06	%	0.18	%	0.21	%	0.08	%
Ratio of allowance for loan losses to total loans at year-end	0.40		%	0.44	%	0.41	%	0.45	%	0.62	%

Charge-offs for the commercial, secured by real estate category had an elevated balance during 2015 due to the sale of impaired loans.

Charge-offs and recoveries classified as “Other” include charge-offs and recoveries on checking and NOW account overdrafts.  LCNB charges off such overdrafts when considered uncollectible, but no later than 60 days from the date first overdrawn.

LCNB continuously reviews the loan portfolio for credit risk through the use of its lending and loan review functions.  Independent loan reviews analyze specific loans, providing validation that credit risks are appropriately identified and reported to the Loan Committee and Board of Directors.  In addition, the Board of Directors’ Audit Committee receives loan review reports throughout each year.  New credits meeting specific criteria are analyzed prior to origination and are reviewed by the Loan Committee and Board of Directors.

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LCNB CORP. AND SUBSIDIARIES

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Inputs from all of the Bank’s credit risk identification processes are used by management to analyze and validate the adequacy and methodology of the allowance quarterly.  The analysis includes two basic components: specific allocations for individual loans and general loss allocations for pools of loans based on average historic loss ratios for the sixty preceding months adjusted for identified economic and other risk factors.  Due to the number, size, and complexity of loans within the loan portfolio, there is always a possibility of inherent undetected losses.

Non-Interest Income

A comparison of non-interest income for 2017, 2016, and 2015 is as follows:

					Increase (Decrease)
	2017		2016	2015	2017 vs. 2016		2016 vs. 2015
	(In thousands)
Fiduciary income	$	3,473	3,286	3,262	187		24
Service charges and fees on deposit accounts	5,236		5,008	4,920	228		88
Net gains on sales of securities	233		1,082	495	(849	)	587
Bank owned life insurance income	867		746	625	121		121
Net gains from sales of loans	166		244	343	(78	)	(99	)
Other operating income	483		487	478	(4	)	9
Total non-interest income	10,458		10,853	10,123	(395	)	730

Reasons for material increases and decreases include:

• Fiduciary income increased during 2017 due to an increase in assets managed and to fee adjustments.

• Service charges and fees on deposit accounts increased during 2017 due to fee adjustments on certain services and greater customer utilization of various services.

• Comparing 2017 to 2016, net gains on sales of securities were less during 2017 primarily due to a lower volume of sales. Comparing 2016 to 2015, net gains were greater in 2016 primarily due to market rates at the times of the sales.

• Comparing 2017 to 2016, bank owned life insurance income was greater for 2017 primarily due to mortality benefits received during the second quarter. Comparing 2016 to 2015, income was greater for 2016 primarily due to $4 million of new policies purchased during the first quarter 2016.

• Comparing 2017 to 2016, net gains from sales of loans was less for 2017 primarily due to a lower volume of loans sold. Comparing 2016 to 2015, net gains were less, even though a higher volume of loans were sold during 2016, due to market pricing at the times of the sales.

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LCNB CORP. AND SUBSIDIARIES

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Non-Interest Expense

A comparison of non-interest expense for 2017, 2016, and 2015 is as follows:

					Increase (Decrease)
	2017		2016	2015	2017 vs. 2016		2016 vs. 2015
	(In thousands)
Salaries and employee benefits	$	18,585	18,215	17,593	370		622
Equipment expenses	1,172		1,048	1,257	124		(209	)
Occupancy expense, net	2,613		2,271	2,307	342		(36	)
State financial institutions tax	1,137		1,114	1,001	23		113
Marketing	873		696	720	177		(24	)
Amortization of intangibles	751		753	700	(2	)	53
FDIC premiums	423		547	598	(124	)	(51	)
ATM expense	572		721	698	(149	)	23
Computer maintenance and supplies	882		790	782	92		8
Telephone expense	735		746	707	(11	)	39
Contracted services	1,255		1,033	842	222		191
Other real estate owned	10		624	489	(614	)	135
Merger-related expenses	118		—	643	118		(643	)
Other non-interest expense	4,737		4,703	4,055	34		648
Total non-interest expense	33,863		33,261	32,392	602		869

Reasons for material increases and decreases include:

• Salaries and employee benefits were 2.0% greater in 2017 than in 2016 and 2016 was 3.5% greater than in 2015. The increase for 2017 was primarily due to salary and wage increases, an increase in the number of employees, and an increase in health insurance costs, partially offset by a net decrease in pension expenses. The increase for 2016 was primarily due to salary and wage increases and employees retained from the acquisition of BNB Bancorp, Inc. on April 30, 2015, partially offset by a net decrease in pension expenses. The number of full-time equivalent employees was 310 at December 31, 2017, 282 at December 31, 2016, and 280 at December 31, 2015.

• Comparing 2017 to 2016, equipment expenses increased primarily due to increased depreciation expense on furniture and equipment purchased for the new Operations Center. Comparing 2016 to 2015, equipment expenses decreased primarily due to a decrease in depreciation expense.

• Occupancy expense for 2017 increased primarily due to increased depreciation on bank premises and, secondarily, to increased maintenance-related expenses, both primarily due to the new Operations Center.

• Marketing expense increased in 2017 primarily due to expanded use of television and digital methods of advertising.

• FDIC premiums decreased in 2017 primarily due to a change in the calculation method used to determine periodic premiums.

• ATM expense for 2017 decreased primarily due to a change in the ATM network that processes PIN-based transactions.

• Contracted services for 2017 increased largely due to fees paid to professional placement services firms, enhanced utilization of loan review specialists, fees related to an after-hours call answering service, and costs related to moving departments from the Main Office to the Operations Center. The increase in 2016 reflects increased use of outside professionals in general.

• Other real estate owned expense decreased during 2017 because other real estate owned property held during the year was minimal.

• Merger-related expenses for 2015 related to the acquisition of BNB Bancorp. Inc. Merger-related expenses for 2017 relate to the pending acquisition of Columbus First Bancorp, Inc.

• Other non-interest expense for 2017 included $154,000 in organizational costs for LCNB Risk Management, Inc. and $113,000 in losses from sales of fixed assets, primarily due to the sale of a closed office building. Other non-interest expense for 2016 included a $251,000 penalty incurred during the first quarter 2016 to pre-pay a Federal Home Loan Bank borrowing. The borrowing bore an interest rate of 5.25% and was paid off to reduce future interest expense.

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LCNB CORP. AND SUBSIDIARIES

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Income Taxes

LCNB's effective tax rates for the years ended December 31, 2017, 2016, and 2015 were 24.8%, 26.3%, and 26.9%, respectively.  The difference between the statutory rate of 34.0% and the effective tax rate is primarily due to tax-exempt interest income, tax-exempt earnings from bank owned life insurance, and tax credits and losses related to investments in affordable housing tax credit limited partnerships.

As a result of the Tax Cuts and Jobs Act that was signed into law on December 22, 2017, LCNB revalued its net deferred tax liability position to reflect the reduction in its federal corporate income tax rate from 34% to 21%. This revaluation resulted in a one-time income tax benefit of approximately $224,000, or $0.02 of basic and diluted earnings per common share for the year ended December 31, 2017.

Assets

Total cash and cash equivalents were $6.5 million greater at December 31, 2017 than at December 31, 2016 primarily due to shrinkage in the investment securities portfolios and an increase in short-term borrowings, partially offset by growth in the loan portfolio and shrinkage in total deposits.

Available-for-sale and held-to-maturity investment securities at December 31, 2017 were respectively $42.2 million less and $8.4 million less than at December 31, 2016. Management used the decrease in investment funds to fund loan growth, to fund deposit shrinkage, and to maintain liquidity.

Net loans at year-end 2017 were $29.4 million greater than at year-end 2016, primarily due to a $50.7 million increase in the commercial, secured by real estate loans. This increase was partially offset by a $5.8 million decrease in commercial and industrial loans, a $14.2 million decrease in residential real estate loans, and a $1.7 million decrease in consumer loans. The increase in the loan portfolio does not reflect $7.5 million of residential fixed-rate real estate loans that were originated and sold to the Federal Home Loan Mortgage Corporation during 2017.

Net premises and equipment at December 31, 2017 was $4.7 million greater than at December 31, 2016 primarily due to construction costs for the new Operations Center in Lebanon, Ohio.

Liabilities

Total deposits at December 31, 2017 were $25.1 million less than at December 31, 2016. Part of the decrease can be attributed to growth in two off-balance sheet investment alternatives offered by LCNB. Assets managed by LCNB Investment Services, a brokerage partnership with LPL Financial LLC, grew from $188.7 million at December 31, 2016 to $229.0 at December 31, 2017. In addition, LCNB introduced a new product during 2017 that sweeps funds from larger balance LCNB deposits into multiple smaller balance, FDIC-insured deposits at other banks.

Short-term borrowings at December 31, 2017 were $5.0 million greater than at December 31, 2016. The additional borrowings were used for liquidity purposes.

Liquidity

Liquidity is the ability to have funds available at all times to meet the commitments of LCNB.  These commitments may include paying dividends to shareholders, funding new loans for borrowers, funding withdrawals by depositors, paying general and administrative expenses, and funding capital expenditures. Sources of liquidity include growth in deposits, principal payments received on loans, proceeds from the sale of loans, the sale or maturation of investment securities, cash generated by operating activities, and the ability to borrow funds.  Management closely monitors the level of liquid assets available to meet ongoing funding requirements. 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 during the past year as a result of current liquidity levels.

The liquidity of LCNB is enhanced by the fact that 85.1% of total deposits at December 31, 2017 were "core" deposits. Core deposits, for this purpose, are defined as total deposits less public funds and certificates of deposit greater than $100,000.

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LCNB CORP. AND SUBSIDIARIES

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Liquid assets include cash and cash equivalents, federal funds sold and securities available-for-sale.  Except for investments in the stock of the Federal Reserve Bank and the Federal Home Loan Bank of Cincinnati (“FHLB”) and certain local municipal securities, all of LCNB's investment portfolio is classified as "available-for-sale" and can be readily sold to meet liquidity needs, subject to certain pledging commitments for public funds, repurchase agreements, and other requirements.  At December 31, 2017, LCNB's liquid assets amounted to $303.9 million or 23.5% of total assets, compared to $339.5 million or 26.0% of total assets at December 31, 2016. The ratio for 2017 is less than 2016 because of a decrease in securities available-for-sale.

An additional source of funding is borrowings from the FHLB.  Long-term advances totaling $303,000 and short-term advances totaling $47.0 million were outstanding at December 31, 2017.  Total remaining available borrowing capacity with the FHLB, including short-term advances, at December 31, 2017 was approximately $56.3 million.  One of the factors limiting availability of FHLB borrowings is a bank’s ownership of FHLB stock.  LCNB could increase its available borrowing capacity by purchasing more FHLB stock.

Besides short-term FHLB advances, short-term borrowings may include federal funds purchased and advances from lines of credit with two other financial institutions.  At December 31, 2017, LCNB could borrow up to $30 million through the lines of credit and up to $10 million under a federal funds arrangements with another financial institution.

Commitments to extend credit at December 31, 2017 totaled $150.7 million, including standby letters of credit totaling $294,000, and are more fully described in Note 14 - Commitments and Contingent Liabilities to LCNB's consolidated financial statements.  Since many commitments to extend credit may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

The following table provides information concerning LCNB's contractual obligations at December 31, 2017:

			Payments due by period
	Total		1 year or less	Over 1 through 3 years	Over 3 through 5 years	More than 5 years
	(In thousands)
Short-term borrowings	$	47,000	47,000	—	—	—
Long-term debt obligations	303		248	55	—	—
Operating lease obligations	4,459		321	450	325	3,363
Estimated pension plan contribution for 2018	224		224	—	—	—
Funding commitments for affordable housing tax credit limited partnerships	2,257		784	856	213	404
Estimated capital expenditure obligations	40		40	—	—	—
Certificates of deposit:
$100,000 and over	66,607		21,667	29,243	15,264	433
Other time certificates	125,292		42,787	54,939	25,773	1,793
Total	$	246,182	113,071	85,543	41,575	5,993

The following table provides information concerning LCNB's commitments at December 31, 2017:

			Amount of Commitment Expiration Per Period
	Total Amounts Committed		1 year or less	Over 1 through 3 years	Over 3 through 5 years	More than 5 years
	(In thousands)
Commitments to extend credit	$	22,861	22,861	—	—	—
Unused lines of credit	127,572		52,094	39,044	17,659	18,775
Standby letters of credit	294		294	—	—	—
Total	$	150,727	75,249	39,044	17,659	18,775

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LCNB CORP. AND SUBSIDIARIES

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Capital Resources

LCNB and the Bank are required by banking regulators to meet certain minimum levels of capital adequacy. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a material effect on LCNB's and the Bank's financial statements.  These minimum levels 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. The first three ratios, which are based on the degree of credit risk in the Bank's assets, provide for weighting assets based on assigned risk factors and include off-balance sheet items such as loan commitments and stand-by letters of credit. Information summarizing the regulatory capital of LCNB and the Bank at December 31, 2017 and 2016 and corresponding regulatory minimum requirements is included in Note 15 - Regulatory Matters of the consolidated financial statements.

The FDIC, the insurer of deposits in financial institutions, has adopted a risk-based insurance premium system based in part on an institution's capital adequacy. Under this system, a depository institution is required to pay successively higher premiums depending on its capital levels and its supervisory rating by its primary regulator. It is management's intention to maintain sufficient capital to permit the Bank to maintain a "well capitalized" designation (the FDIC's highest rating).

On April 17, 2001, LCNB's Board of Directors authorized three separate stock repurchase programs, two of which continue to be in effect – the “Market Repurchase Program” and the “Private Sale Repurchase Program.”  Any shares purchased will be held for future corporate purposes.

Under the Market Repurchase Program, LCNB was originally authorized to purchase up to 200,000 shares of its stock, as restated for a 100% stock dividend issued in May, 2007, through market transactions with a selected stockbroker.  On November 14, 2005, the Board of Directors extended the Market Repurchase Program by increasing the shares authorized for repurchase to 400,000 total shares, as restated for a stock dividend.  Through December 31, 2017, 290,444 shares, as restated for the stock dividend, had been purchased under this program.  No shares were purchased under this program during 2017.

The Private Sale Repurchase Program is available to shareholders who wish to sell large blocks of stock at one time.  Because LCNB's stock is not widely traded, a shareholder releasing large blocks may not be able to readily sell all shares through normal procedures.  Purchases of blocks will be considered on a case-by-case basis and will be made at prevailing market prices.  A total of 466,018 shares, as restated for the stock dividend, had been purchased under this program at December 31, 2017.  No shares were purchased under this program during 2017.

LCNB established an Ownership Incentive Plan during 2002 that allowed for stock-based awards to eligible employees.  Under the plan, awards could be in the form of stock options, share awards, and/or appreciation rights. The plan provided for the issuance of up to 200,000 shares, as restated for a stock dividend.  The 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 approved 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.

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 collectibility 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 collectibility 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 7. 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 December 31, 2017 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 fixed-rate 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.

Fair Value Accounting for Investment Securities.  Securities classified as available-for-sale are carried at estimated fair value.  Unrealized gains and losses, net of taxes, are reported as accumulated other comprehensive income or loss in shareholders’ equity.  Fair value is estimated using market quotations for U.S. Treasury and equity investments.  Fair value for the majority of the remaining available-for-sale securities is estimated using the discounted cash flow method for each security with discount rates based on rates observed in the market.

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LCNB CORP. AND SUBSIDIARIES

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

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.  The IRSA model is used to estimate the effect on net interest income 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 December 31, 2017 IRSA indicates that an increase in interest rates at all shock levels will have a positive effect on net interest income.  The changes in net interest income for all rate assumptions are within LCNB’s acceptable ranges.

Rate Shock Scenario in Basis Points	Amount (In thousands)		$ Change in Net Interest Income	% Change in Net Interest Income
Up 300	$	46,728	2,196	4.93	%
Up 200	45,975		1,443	3.24	%
Up 100	45,239		707	1.59	%
Base	44,532		—	—	%

IRSA shows the effect on net interest income 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 December 31, 2017 EVE analysis indicates that an increase in interest rates would have a negative effect on the EVE for all shock levels.  The changes in the EVE for all rate assumptions are within LCNB’s acceptable ranges.

Rate Shock Scenario in Basis Points	Amount (In thousands)		$ Change in EVE		% Change in EVE
Up 300	$	151,988	(2,484	)	(1.61	)%
Up 200	152,730		(1,742	)	(1.13	)%
Up 100	152,384		(2,088	)	(1.35	)%
Base	154,472		—		—	%

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.

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LCNB CORP. AND SUBSIDIARIES

Item 8.  Financial Statements and Supplementary Data

REPORT OF MANAGEMENT’S ASSESSMENT OF INTERNAL CONTROL OVER FINANCIAL REPORTING

LCNB Corp. (“LCNB”) is responsible for the preparation, integrity, and fair presentation of the consolidated financial statements included in this annual report. Management of LCNB and its subsidiaries is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15f.  LCNB’s internal control over financial reporting is a process designed under the supervision of LCNB’s Chief Executive Officer and the Chief Financial Officer. The purpose is to provide reasonable assurance to the Board of Directors regarding the reliability of financial reporting and the preparation of LCNB’s consolidated financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

Management maintains internal controls over financial reporting. The internal controls contain control processes and actions are taken to correct deficiencies as they are identified. The internal controls are evaluated on an ongoing basis by LCNB’s management and Audit Committee. Even effective internal controls, no matter how well designed, have inherent limitations – including the possibility of circumvention or overriding of controls – and therefore can provide only reasonable assurance with respect to financial statement preparation. Also, because of changes in conditions, internal control effectiveness may vary over time.

Management assessed LCNB’s internal controls as of December 31, 2017, in relation to criteria for effective internal control over financial reporting described in “Internal Control – Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. Based on this assessment, management believes that, as of December 31, 2017, LCNB’s internal control over financial reporting met the criteria.

BKD LLP, an independent registered public accounting firm, has issued an attestation report on the effectiveness of LCNB’s internal control over financial reporting as of December 31, 2017.

Submitted by:

LCNB Corp.

/s/ Steve P. Foster	/s/ Robert C. Haines II
Steve P. Foster	Robert C. Haines II
Chief Executive Officer & President	Executive Vice President &
March 9, 2018	Chief Financial Officer
	March 9, 2018

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LCNB CORP. AND SUBSIDIARIES

Report of Independent Registered Public Accounting Firm

To the Shareholders, Board of Directors and Audit Committee

LCNB Corp.

Lebanon, Ohio

Opinion on the Internal Control Over Financial Reporting

We have audited LCNB Corp.’s (Company) internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework: (2013) issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company and our report dated March 9, 2018, expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

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LCNB CORP. AND SUBSIDIARIES

Definitions and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

/s/ BKD, LLP

BKD, LLP

Cincinnati, Ohio

March 9, 2018

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LCNB CORP. AND SUBSIDIARIES

Report of Independent Registered Public Accounting Firm

To the Shareholders, Board of Directors and Audit Committee

LCNB Corp.

Lebanon, Ohio

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of LCNB Corp. (the “Company”) as of December 31, 2017 and 2016, the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 9, 2018, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ BKD, LLP

BKD, LLP

We have served as the Company’s auditor since 2014.

Cincinnati, Ohio

March 9, 2018

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LCNB CORP. AND SUBSIDIARIES

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

LCNB CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

At December 31,

(Dollars in thousands)

	2017			2016
ASSETS:
Cash and due from banks	$	21,159		18,378
Interest-bearing demand deposits	4,227			487
Total cash and cash equivalents	25,386			18,865
Investment securities:
Available-for-sale, at fair value	278,472			320,659
Held-to-maturity, at cost	32,571			41,003
Federal Reserve Bank stock, at cost	2,732			2,732
Federal Home Loan Bank stock, at cost	3,638			3,638
Loans, net	845,657			816,228
Premises and equipment, net	34,927			30,244
Goodwill	30,183			30,183
Core deposit and other intangibles	3,799			4,582
Bank owned life insurance	27,985			27,307
Other assets	10,288			11,358
TOTAL ASSETS	$	1,295,638		1,306,799
LIABILITIES:
Deposits:
Non-interest-bearing	$	283,212		271,332
Interest-bearing	802,609			839,573
Total deposits	1,085,821			1,110,905
Short-term borrowings	47,000			42,040
Long-term debt	303			598
Accrued interest and other liabilities	12,243			10,312
TOTAL LIABILITIES	1,145,367			1,163,855
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 shares at December 31, 2017 and 2016; issued 10,776,686 and 10,751,652 shares at December 31, 2017 and 2016, respectively	76,977			76,490
Retained earnings	87,301			80,736
Treasury shares at cost, 753,627 shares at December 31, 2017 and 2016	(11,665		)	(11,665	)
Accumulated other comprehensive loss, net of taxes	(2,342		)	(2,617	)
TOTAL SHAREHOLDERS' EQUITY	150,271			142,944
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	1,295,638		1,306,799

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

-44-

LCNB CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

For the years ended December 31,

(Dollars in thousands, except per share data)

	2017		2016	2015
INTEREST INCOME:
Interest and fees on loans	$	36,571	35,600	35,285
Interest on investment securities:
Taxable	4,328		4,582	4,197
Non-taxable	3,130		3,199	2,848
Other investments	434		369	329
TOTAL INTEREST INCOME	44,463		43,750	42,659
INTEREST EXPENSE:
Interest on deposits	3,378		3,440	3,009
Interest on short-term borrowings	209		38	24
Interest on long-term debt	12		26	295
TOTAL INTEREST EXPENSE	3,599		3,504	3,328
NET INTEREST INCOME	40,864		40,246	39,331
PROVISION FOR LOAN LOSSES	215		913	1,366
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	40,649		39,333	37,965
NON-INTEREST INCOME:
Fiduciary income	3,473		3,286	3,262
Service charges and fees on deposit accounts	5,236		5,008	4,920
Net gains on sales of securities	233		1,082	495
Bank owned life insurance income	867		746	625
Net gains from sales of loans	166		244	343
Other operating income	483		487	478
TOTAL NON-INTEREST INCOME	10,458		10,853	10,123
NON-INTEREST EXPENSE:
Salaries and employee benefits	18,585		18,215	17,593
Equipment expenses	1,172		1,048	1,257
Occupancy expense, net	2,613		2,271	2,307
State financial institutions tax	1,137		1,114	1,001
Marketing	873		696	720
Amortization of intangibles	751		753	700
FDIC premiums	423		547	598
ATM expense	572		721	698
Computer maintenance and supplies	882		790	782
Telephone expense	735		746	707
Contracted services	1,255		1,033	842
Other real estate owned	10		624	489
Merger-related expenses	118		—	643
Other non-interest expense	4,737		4,703	4,055
TOTAL NON-INTEREST EXPENSE	33,863		33,261	32,392
INCOME BEFORE INCOME TAXES	17,244		16,925	15,696
PROVISION FOR INCOME TAXES	4,272		4,443	4,222
NET INCOME	$	12,972	12,482	11,474
Earnings per common share:
Basic	$	1.30	1.26	1.18
Diluted	1.29		1.25	1.17
Weighted average common shares outstanding:
Basic	10,005,575		9,948,057	9,704,965
Diluted	10,012,511		9,976,370	9,811,467

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

-45-

LCNB CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the years ended December 31,

(Dollars in thousands)

	2017			2016		2015
Net income	$	12,972		12,482		11,474
Other comprehensive income (loss):
Net unrealized gain (loss) on available-for-sale securities (net of tax expense (benefit) of $285, $(1,242), and $(169) for 2017, 2016, and 2015, respectively)	585			(2,390	)	(329	)
Reclassification adjustment for net realized gain on sale of available-for-sale securities included in net income (net of tax expense of $81, $370, and $168 for 2017, 2016 and 2015, respectively)	(152		)	(712	)	(327	)
Change in nonqualified pension plan unrecognized net gain (loss) and unrecognized prior service cost (net of tax expense (benefit) of $(53), $128, and $55 for 2017, 2016, and 2015, respectively)	(158		)	249		107
Other comprehensive income (loss)	275			(2,853	)	(549	)
TOTAL COMPREHENSIVE INCOME	$	13,247		9,629		10,925
SUPPLEMENTAL INFORMATION:
COMPONENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX, AS OF YEAR-END:
Net unrealized gain (loss) on securities available-for-sale	$	(2,200	)	(2,633	)	469
Net unfunded liability for nonqualified pension plan	(142		)	16		(233	)
Balance at year-end	$	(2,342	)	(2,617	)	236

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

-46-

LCNB CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

For the years ended December 31,

(Dollars in thousands, except share data)

	Common Shares Outstanding	Common Shares			Retained Earnings		Treasury Shares		Accumulated Other Comprehensive Income (Loss)		Total Shareholders' Equity
Balance, December 31, 2014	9,311,318	$	67,181		69,394		(11,665	)	785		125,695
Net income					11,474						11,474
Other comprehensive loss, net of taxes									(549	)	(549	)
Dividend Reinvestment and Stock Purchase Plan	24,610	390									390
Acquisition of BNB Bancorp, Inc.	560,132	9,063									9,063
Exercise of stock options	13,449	152									152
Excess tax benefit on exercise and forfeiture of stock options		13									13
Compensation expense relating to stock options		19									19
Compensation expense relating to restricted stock	16,038	90									90
Common stock dividends, $0.64 per share					(6,239	)					(6,239	)
Balance, December 31, 2015	9,925,547	76,908			74,629		(11,665	)	236		140,108
Net income					12,482						12,482
Other comprehensive loss, net of taxes									(2,853	)	(2,853	)
Dividend Reinvestment and Stock Purchase Plan	21,088	379									379
Repurchase of stock warrants		(1,545		)							(1,545	)
Exercise of stock options	51,390	592									592
Excess tax benefit on exercise and forfeiture of stock options and vesting of restricted common stock		61									61
Compensation expense relating to stock options		5									5
Compensation expense relating to restricted stock	—	90									90
Common stock dividends, $0.64 per share					(6,375	)					(6,375	)
Balance, December 31, 2016	9,998,025	76,490			80,736		(11,665	)	(2,617	)	142,944
Net income					12,972						12,972
Other comprehensive income, net of taxes									275		275
Dividend Reinvestment and Stock Purchase Plan	17,609	360									360
Exercise of stock options	3,398	51									51
Compensation expense relating to stock options		1									1
Compensation expense relating to restricted stock	4,027	75									75
Common stock dividends, $0.64 per share					(6,407	)					(6,407	)
Balance, December 31, 2017	10,023,059	$	76,977		87,301		(11,665	)	(2,342	)	150,271

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

-47-

LCNB CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended December 31,

(Dollars in thousands)

	2017			2016		2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	12,972		12,482		11,474
Adjustments to reconcile net income to net cash flows from operating activities-
Depreciation, amortization and accretion	3,308			2,557		2,997
Provision for loan losses	215			913		1,366
Impact of Tax Cuts and Jobs Act on Accumulated Other Comprehensive Income	486			—		—
Deferred income tax provision (benefit)	1,254			928		(58	)
Increase in cash surrender value of bank owned life insurance	(760		)	(746	)	(625	)
Bank owned life insurance death benefits in excess of cash surrender value	(107		)	—		—
Realized gain on sales of securities available-for-sale	(233		)	(1,082	)	(495	)
Realized loss (gain) on sale of premises and equipment	113			33		(1	)
Realized loss from sale and write-downs of other real estate owned and repossessed assets	3			534		378
Origination of mortgage loans for sale	(7,513		)	(11,217	)	(7,725	)
Realized gains from sales of loans	(166		)	(244	)	(343	)
Proceeds from sales of loans	7,588			11,353		7,809
Penalty for prepayment of long-term debt	—			251		—
Compensation expense related to stock options	1			5		19
Compensation expense related to restricted stock	75			90		90
Changes in:
Income receivable	(4		)	(216	)	(160	)
Other assets	(269		)	(791	)	(3,302	)
Other liabilities	1,172			634		1,815
TOTAL ADJUSTMENTS	5,163			3,002		1,765
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES	18,135			15,484		13,239
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investment securities available-for-sale	43,246			92,455		97,981
Proceeds from maturities and calls of investment securities:
Available-for-sale	25,012			84,529		29,700
Held-to-maturity	14,057			6,640		3,515
Purchases of investment securities:
Available-for-sale	(27,012		)	(124,934	)	(163,859	)
Held-to-maturity	(5,625		)	(25,010	)	(3,413	)
Purchase of Federal Reserve Bank stock	—			—		(256	)
Proceeds from sale of impaired loans	—			—		4,559
Net increase in loans	(29,692		)	(48,153	)	(42,530	)
Purchase of bank owned life insurance	—			(4,000	)	—
Proceeds from bank owned life insurance death benefits	189			—		—
Proceeds from sales of other real estate owned and repossessed assets	971			526		245
Additions to other real estate owned	—			(182	)	(20	)
Purchases of premises and equipment	(6,617		)	(9,450	)	(504	)
Proceeds from sales of premises and equipment	272			63		22
Net cash acquired from acquisition	—			—		8,993
NET CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES	14,801			(27,516	)	(65,567	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits	(25,084		)	23,745		41,822
Net increase in short-term borrowings	4,960			4,653		20,742
Principal payments on long-term debt	(295		)	(5,349	)	(5,410	)
Penalty for prepayment of long-term debt	—			(251	)	—
Proceeds from issuance of common stock	41			52		66
Repurchase of stock warrants	—			(1,545	)	—
Proceeds from exercise of stock options	51			592		152
Excess tax benefit from exercise of stock options and vesting of restricted common stock	—			61		13
Cash dividends paid on common stock	(6,088		)	(6,048	)	(5,915	)
NET CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES	(26,415		)	15,910		51,470
NET CHANGE IN CASH AND CASH EQUIVALENTS	6,521			3,878		(858	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR	18,865			14,987		15,845
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	25,386		18,865		14,987
SUPPLEMENTAL CASH FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR:
Interest	$	3,577		3,542		3,396
Income taxes	2,185			4,420		4,820
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING ACTIVITY:
Transfer from loans to other real estate owned and repossessed assets	974			32		79

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

-48-

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

LCNB Corp. (the "Company" or “LCNB”), an Ohio corporation formed in December 1998, is a financial holding company whose principal activity is the ownership of LCNB National Bank (the "Bank").  The Bank was founded in 1877 and provides full banking services, including trust and brokerage services, to customers primarily in Southwestern and South Central Ohio.

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of the Company and its subsidiaries. Significant intercompany accounts and transactions are eliminated in consolidation.  The accounting and reporting policies of the Company conform with U.S. generally accepted accounting principles and with general practices in the banking industry.

Certain prior period data presented in the financial statements have been reclassified to conform with the current year presentation. These reclassifications had no effect on net income.

USE OF ESTIMATES

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.

CASH AND CASH EQUIVALENTS

For purposes of reporting cash flows, cash and cash equivalents include cash, balances due from banks, federal funds sold, and interest-bearing demand deposits with original maturities of twelve months or less.  Deposits with other banks routinely have balances greater than FDIC insured limits.  Management considers the risk of loss to be very low with respect to such deposits.

INVESTMENT SECURITIES

Certain municipal debt securities that management has the positive intent and ability to hold to maturity are classified as “held-to-maturity” and recorded at amortized cost.  Securities not classified as held-to-maturity are classified as “available-for-sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income, a separate component of shareholders’ equity.  Amortization of premiums and accretion of discounts are recognized as adjustments to interest income using the level-yield method.  Realized gains or losses from the sale of securities are recorded on the trade date and are computed using the specific identification method.

Declines in the fair value of securities below their cost that are deemed to be other-than-temporarily impaired, and for which the Company does not intend to sell the securities and it is not more likely than not that the securities will be sold before the anticipated recovery of the impairment, are separated into losses related to credit factors and losses related to other factors.  The losses related to credit factors are recognized in earnings and losses related to other factors are recognized in other comprehensive income.  In estimating other than temporary impairment losses, management considers the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. The Company's consolidated statements of income as of December 31, 2017, 2016, and 2015, do not reflect any such impairment.

Federal Home Loan Bank ("FHLB") stock is an equity interest in the Federal Home Loan Bank of Cincinnati.  It can be sold only at its par value of $100 per share and only to the FHLB or to another member institution.  In addition, the equity ownership rights are more limited than would be the case for a public company because of the oversight role exercised by the Federal Housing Finance Agency in the process of budgeting and approving dividends.  Federal Reserve Bank stock is similarly restricted in marketability and value.  Both investments are carried at cost, which is their par value.

FHLB and Federal Reserve Bank stock are both subject to minimum ownership requirements by member banks.  The required investments in common stock are based on predetermined formulas.

-49-

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

(Continued)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

LOANS

The Company’s loan portfolio includes most types of commercial and industrial loans, commercial loans secured by real estate, residential real estate loans, consumer loans, agricultural loans and other types of loans. Most of the properties collateralizing the loan portfolio are located within the Company’s market area.

Loans are stated at the principal amount outstanding, net of unearned income, deferred origination fees and costs, and the allowance for loan losses.  Interest income is accrued on the unpaid principal balance. The delinquency status of a loan is based on contractual terms and not on how recently payments have been received.  Generally, a loan is placed on non-accrual status when it is classified as impaired or there is an indication that the borrower’s cash flow may not be sufficient to make payments as they come due, unless the loan is well secured and in the process of collection.  Subsequent cash receipts on non-accrual loans are recorded as a reduction of principal and interest income is recorded once principal recovery is reasonably assured.  The current year's accrued interest on loans placed on non-accrual status is charged against earnings. Previous years' accrued interest is charged against the allowance for loan losses. Non-accrual loans are returned to accrual status when, in the opinion of management, the financial position of the borrower indicates there is no longer a reasonable doubt as to the timely collection of interest or principal.

Loan origination fees and certain direct loan origination costs are deferred and the net amount amortized as an adjustment of loan yields.  These amounts are being amortized over the lives of the related loans.

In the ordinary course of business, the Company enters into off-balance sheet financial instruments consisting of commitments to extend credit and standby letters of credit.  Such financial instruments are recorded in the financial statements when they are funded.  The credit risk associated with these commitments is evaluated in a manner similar to the allowance for loan losses.

Loans acquired from 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. Management estimates the cash flows expected to be collected at acquisition using a third-party risk model, which incorporates the estimate of key assumptions, such as default rates, severity, and prepayment speeds.

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 current 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.

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 collectibility of the principal is unlikely.  Consumer loans are charged off when they reach 120 days past due.  Subsequent recoveries, if any, are credited to the allowance.

-50-

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

(Continued)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

The provision for loan losses is determined by management based upon its evaluation of the amount needed to maintain the allowance for loan losses at a level considered appropriate in relation to the estimated risk of losses inherent in the portfolio.  Current methodology used by management to estimate the allowance takes into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, historic categorical trends, current delinquency levels as related to historical levels, portfolio growth rates, changes in composition of the portfolio, the current economic environment, as well as current allowance adequacy in relation to the portfolio.  Management is cognizant that reliance on historical information coupled with the cyclical nature of the economy, including credit cycles, affects the allowance.  Management considers all of these factors prior to making any adjustments to the allowance due to the subjectivity and imprecision involved in allocation methodology.  This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of specific and general components.  The specific component relates to loans that are specifically reviewed for impairment.  For such loans, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan.  The general component covers loans not specifically reviewed for impairment and homogeneous loan pools, such as residential real estate and consumer loans.  The general component is measured for each loan category separately based on each category’s average of historical loss experience over a trailing sixty month period, adjusted for qualitative factors.  Such qualitative factors may include current economic conditions if different from the five-year historical loss period, trends in underperforming loans, trends in volume and terms of loan categories, concentrations of credit, and trends in loan quality.

A loan is considered impaired when management believes, based on current information and events, it is probable that the Bank will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the loan agreement.  An impaired loan is measured by the present value of expected future cash flows using the loan's effective interest rate.  An impaired collateral-dependent loan may be measured based on collateral value.  Smaller-balance homogeneous loans, including residential mortgage and consumer installment loans, that are not evaluated individually are collectively evaluated for impairment.

PREMISES AND EQUIPMENT

Premises and equipment are stated at cost less accumulated depreciation.  Depreciation is computed on both the straight-line and accelerated methods over the estimated useful lives of the assets, generally 15 to 40 years for premises and 3 to 10 years for equipment.  Leasehold improvements are amortized over the terms of the respective leases or the estimated useful lives of the improvements, whichever is shorter. Costs incurred for maintenance and repairs are expensed as incurred. Premises and equipment are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of a particular asset may not be recoverable.

OTHER REAL ESTATE OWNED

Other real estate owned includes properties acquired through foreclosure.  Such property is held for sale and is initially recorded at fair value, less costs to sell, establishing a new cost basis.  Fair value is primarily based on a property appraisal obtained at the time of transfer and any periodic updates that may be obtained thereafter.  The allowance for loan losses is charged for any write down of the loan’s carrying value to fair value at the date of transfer.  Any subsequent reductions in fair value and expenses incurred from holding other real estate owned are charged to other non-interest expense.  Costs, excluding interest, relating to the improvement of other real estate owned are capitalized.  Gains and losses from the sale of other real estate owned are included in other non-interest expense.

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill is the excess of the purchase price over the fair value of the net identifiable assets acquired in a business combination.  Goodwill is not amortized, but is instead subject to an annual review for impairment.

Mortgage servicing rights on originated mortgage loans that have been sold are initially recorded at their estimated fair values.  Mortgage servicing rights are amortized to loan servicing income in proportion to and over the period of estimated servicing income.  Such assets are periodically evaluated as to the recoverability of their carrying value.

-51-

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

(Continued)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

The Company’s other intangible assets relate to core deposits acquired from business combinations.  These intangible assets are amortized on a straight-line basis over their estimated useful lives.  Management evaluates whether events or circumstances have occurred that indicate the remaining useful life or carrying value of the amortizing intangible should be revised.

BANK OWNED LIFE INSURANCE

The Company has purchased life insurance policies on certain officers of the Company.  The Company is the beneficiary of these policies and has recorded the estimated cash surrender value in other assets in the consolidated balance sheets.  Income on the policies, based on the increase in cash surrender value and any incremental death benefits, is included in other non-interest income in the consolidated statements of income.

AFFORDABLE HOUSING TAX CREDIT LIMITED PARTNERSHIP

LCNB has elected to account for its investment in an affordable housing tax credit limited partnership using the proportional amortization method described in FASB ASU 2014-01, "Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects (A Consensus of the FASB Emerging Issues Task Force)." Under the proportional amortization method, an investor amortizes the initial cost of the investment to income tax expense in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense. The investment in the limited partnership is included in other assets and the unfunded amount is included in accrued interest and other liabilities in LCNB's consolidated balance sheets.

FAIR VALUE MEASUREMENTS

Accounting guidance establishes a fair value hierarchy to prioritize the inputs to valuation techniques used to measure fair value.  A financial instrument’s level within the hierarchy is based on the lowest level of input that is significant to the fair value measurement.  The three broad input levels are:

• 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; and

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

Accounting guidance permits, but does not require, companies to measure many financial instruments and certain other items at fair value.  The decision to elect the fair value option is made individually for each instrument and is irrevocable once made.  Changes in fair value for the selected instruments are recorded in earnings. The Company did not select any financial instruments for the fair value election in 2017 or 2016.

ADVERTISING EXPENSE

Advertising costs are expensed as incurred and are recorded as a marketing expense, a component of non-interest expense.

PENSION PLANS

Eligible employees of the Company hired before 2009 participate in a multiple-employer qualified noncontributory defined benefit retirement plan.  This plan is accounted for as a multi-employer plan because assets contributed by an employer are not segregated in a separate account or restricted to provide benefits only to employees of that employer.

Citizens National had a qualified noncontributory, defined benefit pension plan, which has been assumed by the Company, that covers eligible employees hired before May 1, 2005. This is a single employer plan.

TREASURY STOCK

Common shares repurchased are recorded at cost. Cost of shares retired or reissued is determined using the weighted average method.

-52-

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

(Continued)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

STOCK OPTIONS AND RESTRICTED STOCK AWARD PLANS

The cost of employee services received in exchange for stock option grants is the grant-date fair value of the award estimated using an option-pricing model.  The compensation cost for restricted stock awards is based on the market price of the Company's common stock at the date of grant multiplied by the number of shares granted that are expected to vest. The estimated cost is recognized on a straight-line basis over the period the employee is required to provide services in exchange for the award, usually the vesting period.  The Company uses a Black-Scholes pricing model and related assumptions for estimating the fair value of stock option grants and a five-year vesting period for stock options and restricted stock.

INCOME TAXES

Deferred income taxes are determined using the asset and liability method of accounting.  Under this method, the net deferred tax asset or liability is determined based on the tax effects of temporary differences between the book and tax basis of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws.

Management analyzes material tax positions taken in any income tax return for any tax jurisdiction and determines the likelihood of the positions being sustained in a tax examination.  A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur.  The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination.  For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

EARNINGS PER SHARE

Basic earnings per share allocated  to common shareholders is calculated using the two-class method and is computed by dividing net income allocated to common shareholders by the weighted average number of common shares outstanding during the period.  Diluted earnings per share is adjusted for the dilutive effects of stock based compensation and warrants and is calculated using the two-class method or the treasury stock method.  The diluted average number of common shares outstanding has been increased for the assumed exercise of stock based compensation and warrants with the proceeds used to purchase treasury shares at the average market price for the period.

RECENT ACCOUNTING PRONOUNCEMENTS

From time to time the FASB issues an Accounting Standards Update ("ASU") to communicate changes to Generally Accepted Accounting Principles ("GAAP"). 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.

Guidance in ASU No. 2014-09 has been clarified by the following ASUs:

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

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

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

• ASU No. 2016-20, "Revenue from Contracts with Customers (Topic 606): Technical Corrections and Improvements"

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LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

(Continued)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

As extended by ASU No. 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date," ASU No. 2014-09 and the clarifying ASUs are 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 updates. Earlier adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. LCNB's revenue is comprised of net interest income, which is explicitly excluded from the scope of ASU No. 2014-09, and non-interest income. LCNB management has finalized its assessment of the update's affect on non-interest income and has determined that the amendments in ASU No. 2014-09 will not result in a material change from current accounting. Changes to related disclosures are still being analyzed.

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 did not 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.

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LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

(Continued)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

For finance leases, a lessee shall recognize in the statement of 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 estimates that it will recognize discounted right of use assets and lease liabilities totaling approximately $5 million for the leases disclosed in Note 8 - Leases. This projection is based on various assumptions, including the level of interest rates and no significant increases in leasing activity, that may change between now and the effective date.

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. While LCNB's Loan Committee expects that the implementation of ASU No. 2016-13 will increase the balance of the allowance for loan losses, it is continuing to evaluate the potential impact on LCNB's results of operations and financial position. The Loan Committee is currently analyzing its data collection efforts, pool segmentation, and reporting mechanisms to prepare for adoption of this ASU. The financial statement impact of this new standard cannot be reasonably estimated at this time.

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LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

(Continued)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

ASU No. 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment"

ASU No. 2017-04 was issued in January 2017 and applies to public and other entities that have goodwill reported in their financial statements. To simplify the subsequent measurement of goodwill, this ASU eliminates Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities, including unrecognized assets and liabilities, following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in this update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. A public business entity that is an SEC filer should adopt the amendments in this update on a prospective basis for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Adoption of ASU No. 2017-04 is not expected to have a material impact on LCNB's results of operations or financial position.

ASU No. 2017-07, "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost

and Net Periodic Postretirement Benefit Cost"

ASU No. 2017-07 was issued in March 2017 and applies to all employers that offer to their employees defined benefit pension plans, other postretirement benefit plans, or other types of benefits accounted for under Topic 715. The amendments in this update require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost, as defined, are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed. The amendments in ASU No. 2017-07 are effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The amendments in this update are to be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement. Adoption of ASU No. 2017-07 did not have a material impact on LCNB's results of operations or financial position.

ASU No. 2017-09, "Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting"

ASU No. 2017-09 was issued in May 2017 and applies to any entity that changes the terms or conditions of a share-based payment award. The amendments in this update provide that an entity would not apply modification accounting under the guidance in Topic 718 if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification. The amendments are to be applied prospectively and are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Adoption of ASU No. 2017-09 did not have a material impact on LCNB's results of operations or financial position.

ASU No. 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities"

ASU No. 2017-12 was issued in August 2017 and applies to any entity that elects to apply hedge accounting in accordance with current generally accepted accounting principles. The amendments in this update better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. To meet that objective, the amendments expand and refine hedge accounting for both nonfinancial and financial risk components. The amendments are effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early application is permitted. LCNB does not currently own any instruments within the scope of ASU No. 2017-12 and its adoption is not expected to have a material impact on its results of operations or financial position.

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LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

(Continued)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

ASU No. 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income"

ASU No. 2018-02 was issued in February 2018 and addresses a narrow-scope financial reporting issue that arose as a consequence of the passage of H.R. 1, originally known as the “Tax Cuts and Jobs Act.” GAAP requires adjustment of deferred tax assets and liabilities for the effect of a change in tax laws or rates with the effect to be included in income from continuing operations in the reporting period that includes the enactment date. This guidance is applicable even in situations in which the related income tax effects of items in accumulated other comprehensive income were originally recognized in other comprehensive income rather than in income from continuing operations. As a consequence, the tax effects of items within accumulated other comprehensive income, referred to as stranded tax effects in the update, do not reflect the appropriate tax rate. The amendments in ASU No. 2018-02 allow a reclassification from accumulated other comprehensive income to retained earnings for the stranded tax effects resulting from the Tax Cuts and Jobs Act. Because the amendments only relate to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. ASU No. 2018-02 is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period. LCNB intends to early adopt ASU No. 2018-02 as of January 1, 2018 and reclassify its stranded tax effects totaling $486,000 (credit) into retained earnings.

NOTE 2 – ACQUISITIONS (UNAUDITED)

On December 20, 2017, LCNB and Columbus First Bancorp, Inc. (“CFB”) entered into an Agreement and Plan of Merger (“Merger Agreement”) pursuant to which CFB will merge with and into LCNB in an all-stock transaction. Immediately following the merger of CFB into LCNB, Columbus First Bank, a wholly-owned subsidiary of CFB, will be merged into theBank. Columbus First Bank operates from one full-service office located in Worthington, Ohio. Subject to customary regulatory approvals, LCNB and CFB shareholder approvals, and other conditions set forth in the definitive merger agreement, the transaction is anticipated to close in the second quarter of 2018. At that time, Columbus First Bank's office will become a branch of the Bank.

Under the terms of the Merger Agreement, which has been unanimously approved by the Board of Directors of each company, the shareholders of CFB will be entitled to receive two LCNB common shares for each outstanding CFB common share. Any unexercised stock options of CFB will be canceled in exchange for a cash payment. Based on LCNB's closing share price of $18.50 as of February 28, 2018, the transaction is valued at $37.00 for each CFB share or approximately $58.8 million in aggregate. As of February 28, 2018, Columbus First has 1,589,516 shares outstanding, as well as 65,724 options with a weighted average strike price of $14.06 per share.

The acquisition will be accounted for in accordance with applicable accounting guidance. Accordingly, the assets and liabilities

of CFB will be recorded at their estimated fair values at the acquisition date. The excess of the estimated fair value of LCNB common shares issued over the net fair values of the assets acquired, including identifiable intangible assets and liabilities assumed, will be recorded as goodwill. The results of operations will be included in the consolidated income statement from the date of the acquisition. Goodwill will be subject to an annual test for impairment and the amount impaired, if any, will be charged to expense at the time of impairment.

The estimated fair values of the assets and liabilities have not yet been determined. The recorded amounts reflected on the historic financial records of CFB as of December 31, 2017 include total assets of approximately $330.4 million, consisting primarily of net loans of $279.7 million and interest-bearing deposits of $36.5 million. Recorded liabilities totaling approximately $297.7 million consisted primarily of deposits totaling $259.3 million.

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LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

(Continued)

NOTE 3 - INVESTMENT SECURITIES

The amortized cost and fair value of available-for-sale investment securities at December 31 are summarized as follows (in thousands):

	Amortized Cost		Unrealized Gains	Unrealized Losses	Fair Value
2017
Investment Securities Available-for-Sale:
U.S. Treasury notes	$	2,283	—	24	2,259
U.S. Agency notes	84,837		57	1,633	83,261
U.S. Agency mortgage-backed securities	68,347		33	1,227	67,153
Municipal securities:
Non-taxable	102,849		343	1,018	102,174
Taxable	20,313		175	122	20,366
Mutual funds	2,586		2	46	2,542
Trust preferred securities	49		1	—	50
Equity securities	574		97	4	667
	$	281,838	708	4,074	278,472
Investment Securities Held-to-Maturity:
Municipal securities:
Non-taxable	$	28,871	101	227	28,745
Taxable	3,700		—	95	3,605
	$	32,571	101	322	32,350
2016
Investment Securities Available-for-Sale:
U.S. Treasury notes	$	28,180	41	76	28,145
U.S. Agency notes	87,098		150	1,848	85,400
U.S. Agency mortgage-backed securities	72,402		89	1,444	71,047
Municipal securities:
Non-taxable	114,064		574	1,623	113,015
Taxable	19,710		220	85	19,845
Mutual funds	2,527		—	45	2,482
Trust preferred securities	49		—	1	48
Equity securities	632		55	10	677
	$	324,662	1,129	5,132	320,659
Investment Securities Held-to-Maturity:
Municipal securities:
Non-taxable	$	31,015	56	352	30,719
Taxable	9,988		—	217	9,771
	$	41,003	56	569	40,490

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LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

(Continued)

NOTE 3 - INVESTMENT SECURITIES(Continued)

Information concerning securities with gross unrealized losses at December 31, 2017 and 2016, aggregated by length of time that individual securities have been in a continuous loss position, is as follows (in thousands):

	Less Than Twelve Months			Twelve Months or More
	Fair Value		Unrealized Losses	Fair Value	Unrealized Losses
2017
Investment Securities Available-for-Sale:
U.S. Treasury notes	$	2,259	24	—	—
U.S. Agency notes	33,651		344	44,560	1,289
U.S. Agency mortgage-backed securities	24,433		142	41,080	1,085
Municipal securities:
Non-taxable	36,348		315	24,197	703
Taxable	11,068		114	1,032	8
Mutual funds	—		—	1,519	46
Trust preferred securities	—		—	—	—
Equity securities	119		2	17	2
	$	107,878	941	112,405	3,133
Investment Securities Held-to-Maturity:
Municipal securities:
Non-taxable	$	9,824	133	3,542	94
Taxable	—		—	3,205	95
	$	9,824	133	6,747	189
2016
Investment Securities Available-for-Sale:
U.S. Treasury notes	$	16,076	76	—	—
U.S. Agency notes	69,784		1,848	—	—
U.S. Agency mortgage-backed securities	64,564		1,310	3,518	134
Municipal securities:
Non-taxable	72,867		1,621	451	2
Taxable	9,721		82	450	3
Mutual funds	1,205		37	277	8
Trust preferred securities	49		1	—	—
Equity securities	201		10	—	—
	$	234,467	4,985	4,696	147
Investment Securities Held-to-Maturity:
Municipal securities:
Non-taxable	$	20,429	251	2,564	101
Taxable	8,030		217	—	—
	$	28,459	468	2,564	101

Management has determined that the unrealized losses at December 31, 2017 are primarily due to fluctuations in market interest rates and do not reflect credit quality deterioration of the securities.   Because the Company does not have the intent to sell the investments and it is more likely than not that the Company will not be required to sell the investments before recovery of their amortized cost, the Company does not consider these investments to be other-than-temporarily impaired.

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LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

(Continued)

NOTE 3 - INVESTMENT SECURITIES(Continued)

Contractual maturities of investment securities at December 31, 2017 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	$	11,222	11,267	4,043	4,047
Due from one to five years	92,900		92,453	4,128	4,045
Due from five to ten years	102,520		100,836	8,415	8,286
Due after ten years	3,640		3,504	15,985	15,972
	210,282		208,060	32,571	32,350
U.S. Agency mortgage-backed securities	68,347		67,153	—	—
Mutual funds	2,586		2,542	—	—
Trust preferred securities	49		50	—	—
Equity securities	574		667	—	—
	$	281,838	278,472	32,571	32,350

Investment securities with a market value of $108,751,000 and $149,990,000 at December 31, 2017 and 2016, respectively, were pledged to secure public deposits and for other purposes required or permitted by law.

Certain information concerning the sale of investment securities available-for-sale for the years ended December 31 was as follows (in thousands):

	2017		2016	2015
Proceeds from sales	$	43,246	92,455	97,981
Gross realized gains	247		1,103	627
Gross realized losses	14		21	132

NOTE 4 - LOANS

Major classifications of loans at December 31 were as follows (in thousands):

	2017		2016
Commercial and industrial	$	36,057	41,878
Commercial, secured by real estate	527,947		477,275
Residential real estate	251,582		265,788
Consumer	17,450		19,173
Agricultural	15,194		14,802
Other loans, including deposit overdrafts	539		633
	848,769		819,549
Deferred origination costs, net	291		254
	849,060		819,803
Less allowance for loan losses	3,403		3,575
Loans-net	$	845,657	816,228

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LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

(Continued)

NOTE 4 - LOANS (Continued)

Non-accrual, past-due, and accruing restructured loans at December 31 were as follows (dollars in thousands):

	2017			2016
Non-accrual loans:
Commercial and industrial	$	—		—
Commercial, secured by real estate	2,183			4,312
Agricultural	178			334
Residential real estate	604			1,079
Total non-accrual loans	2,965			5,725
Past-due 90 days or more and still accruing	—			23
Total non-accrual and past-due 90 days or more and still accruing	2,965			5,748
Accruing restructured loans	10,469			11,731
Total	$	13,434		17,479
Percentage of total non-accrual and past-due 90 days or more and still accruing to total loans	0.35		%	0.70	%
Percentage of total non-accrual, past-due 90 days or more and still accruing, and accruing restructured loans to total loans	1.58		%	2.13	%

Interest income that would have been recorded during 2017 and 2016 if loans on non-accrual status at December 31, 2017 and 2016 had been current and in accordance with their original terms was approximately $202,000 and $220,000, respectively.

The Company is not committed to lend additional funds to debtors whose loans have been modified to provide a reduction or deferral of principal or interest because of deterioration in the financial position of the borrower.

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LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

(Continued)

NOTE 4 - LOANS (Continued)

The allowance for loan losses and recorded investment in loans for the years ended December 31 were as follows (in thousands):

	Commercial & Industrial			Commercial, Secured by Real Estate		Residential Real Estate		Consumer		Agricultural		Other		Total
December 31, 2017
Allowance for loan losses:
Balance, beginning of year	$	350		2,179		885		96		60		5		3,575
Provision charged to expenses	(71		)	348		(83	)	(44	)	(7	)	72		215
Losses charged off	—			(462	)	(225	)	(90	)	—		(138	)	(915	)
Recoveries	99			113		140		114		—		62		528
Balance, end of year	$	378		2,178		717		76		53		1		3,403
Individually evaluated for impairment	$	8		146		29		8		—		—		191
Collectively evaluated for impairment	370			2,032		688		68		53		1		3,212
Acquired credit impaired loans	—			—		—		—		—		—		—
Balance, end of year	$	378		2,178		717		76		53		1		3,403
Loans:
Individually evaluated for impairment	$	303		11,289		1,351		47		177		—		13,167
Collectively evaluated for impairment	34,792			512,259		248,674		17,516		15,033		137		828,411
Acquired credit impaired loans	1,008			4,048		2,024		—		—		402		7,482
Balance, end of year	$	36,103		527,596		252,049		17,563		15,210		539		849,060
December 31, 2016
Allowance for loan losses:
Balance, beginning of year	$	244		1,908		854		54		66		3		3,129
Provision charged to expenses	314			358		106		74		(6	)	67		913
Losses charged off	(234		)	(185	)	(127	)	(85	)	—		(119	)	(750	)
Recoveries	26			98		52		53		—		54		283
Balance, end of year	$	350		2,179		885		96		60		5		3,575
Individually evaluated for impairment	$	9		55		100		13		—		—		177
Collectively evaluated for impairment	341			1,832		785		83		60		5		3,106
Acquired credit impaired loans	—			292		—		—		—		—		292
Balance, end of year	$	350		2,179		885		96		60		5		3,575
Loans:
Individually evaluated for impairment	$	337		12,580		1,518		52		334		—		14,821
Collectively evaluated for impairment	41,466			458,059		262,266		19,192		14,475		178		795,636
Acquired credit impaired loans	98			6,305		2,471		17		—		455		9,346
Balance, end of year	$	41,901		476,944		266,255		19,261		14,809		633		819,803

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LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

(Continued)

NOTE 4 - LOANS (Continued)

	Commercial & Industrial			Commercial, Secured by Real Estate		Residential Real Estate		Consumer		Agricultural		Other		Total
December 31, 2015
Allowance for loan losses:
Balance, beginning of year	$	129		1,990		926		63		11		2		3,121
Provision charged to expenses	208			955		125		(17	)	55		40		1,366
Losses charged off	(100		)	(1,133	)	(304	)	(52	)	(67	)	(74	)	(1,730	)
Recoveries	7			96		107		60		67		35		372
Balance, end of year	$	244		1,908		854		54		66		3		3,129
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 year	$	244		1,908		854		54		66		3		3,129

The risk characteristics of LCNB's material loan portfolio segments were 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% to 80% maximum loan to appraised value ratio, depending upon borrower occupancy.

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.”

-63-

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

(Continued)

NOTE 4 - LOANS (Continued)

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 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 collectibility 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.

The Company 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 the Company 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.

-64-

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

(Continued)

NOTE 4 - LOANS (Continued)

An analysis of the Company’s loan portfolio by credit quality indicators at December 31 is as follows (in thousands):

	Pass		OAEM	Substandard	Doubtful	Total
December 31, 2017
Commercial & industrial	$	35,683	176	244	—	36,103
Commercial, secured by real estate	506,833		2,180	18,583	—	527,596
Residential real estate	250,039		—	2,010	—	252,049
Consumer	17,522		—	41	—	17,563
Agricultural	14,233		—	977	—	15,210
Other	539		—	—	—	539
Total	$	824,849	2,356	21,855	—	849,060
December 31, 2016
Commercial & industrial	$	41,178	304	419	—	41,901
Commercial, secured by real estate	443,781		5,479	27,684	—	476,944
Residential real estate	261,839		442	3,974	—	266,255
Consumer	19,182		—	79	—	19,261
Agricultural	13,311		—	1,498	—	14,809
Other	633		—	—	—	633
Total	$	779,924	6,225	33,654	—	819,803

The Company evaluates the loan risk grading system definitions and allowance for loan loss methodology on an ongoing basis. No significant changes were made to either during the past year.

-65-

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

(Continued)

NOTE 4 - LOANS (Continued)

A loan portfolio aging analysis at December 31 is as follows (in thousands):

	30-59 Days Past Due		60-89 Days Past Due	Greater Than 90 Days	Total Past Due	Current	Total Loans Receivable	Total Loans Greater Than 90 Days and Accruing
December 31, 2017
Commercial & industrial	$	—	—	—	—	36,103	36,103	—
Commercial, secured by real estate	124		—	598	722	526,874	527,596	—
Residential real estate	362		135	496	993	251,056	252,049	—
Consumer	29		2	—	31	17,532	17,563	—
Agricultural	—		—	177	177	15,033	15,210	—
Other	82		—	—	82	457	539	—
Total	$	597	137	1,271	2,005	847,055	849,060	—
December 31, 2016
Commercial & industrial	$	19	—	—	19	41,882	41,901	—
Commercial, secured by real estate	99		69	127	295	476,649	476,944	—
Residential real estate	686		80	727	1,493	264,762	266,255	20
Consumer	59		16	3	78	19,183	19,261	3
Agricultural	125		—	—	125	14,684	14,809	—
Other	115		—	—	115	518	633	—
Total	$	1,103	165	857	2,125	817,678	819,803	23

-66-

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

(Continued)

NOTE 4 - LOANS (Continued)

Impaired loans for the years ended December 31 were as follows (in thousands):

	Recorded Investment		Unpaid Principal Balance	Related Allowance	Average Recorded Investment	Interest Income Recognized
December 31, 2017
With no related allowance recorded:
Commercial & industrial	$	1,015	1,100	—	685	88
Commercial, secured by real estate	12,677		13,608	—	14,113	1,068
Residential real estate	2,822		3,516	—	3,216	546
Consumer	6		6	—	20	2
Agricultural	177		177	—	269	12
Other	402		554	—	441	55
Total	$	17,099	18,961	—	18,744	1,771
With an allowance recorded:
Commercial & industrial	$	296	301	8	311	18
Commercial, secured by real estate	2,660		2,660	146	2,739	45
Residential real estate	553		572	29	596	19
Consumer	41		41	8	43	3
Agricultural	—		—	—	—	—
Other	—		—	—	—	—
Total	$	3,550	3,574	191	3,689	85
Total:
Commercial & industrial	$	1,311	1,401	8	996	106
Commercial, secured by real estate	15,337		16,268	146	16,852	1,113
Residential real estate	3,375		4,088	29	3,812	565
Consumer	47		47	8	63	5
Agricultural	177		177	—	269	12
Other	402		554	—	441	55
Total	$	20,649	22,535	191	22,433	1,856

-67-

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

(Continued)

NOTE 4 - LOANS (Continued)

	Recorded Investment		Unpaid Principal Balance	Related Allowance	Average Recorded Investment	Interest Income Recognized
December 31, 2016
With no related allowance recorded:
Commercial & industrial	$	109	263	—	998	151
Commercial, secured by real estate	14,195		15,522	—	15,274	1,140
Residential real estate	3,238		4,286	—	3,736	369
Consumer	26		27	—	37	29
Agricultural	334		334	—	392	136
Other	455		629	—	481	77
Total	$	18,357	21,061	—	20,918	1,902
With an allowance recorded:
Commercial & industrial	$	326	326	9	341	19
Commercial, secured by real estate	4,690		4,946	347	4,194	257
Residential real estate	751		751	100	651	36
Consumer	43		43	13	43	3
Agricultural	—		—	—	—	—
Other	—		—	—	—	—
Total	$	5,810	6,066	469	5,229	315
Total:
Commercial & industrial	$	435	589	9	1,339	170
Commercial, secured by real estate	18,885		20,468	347	19,468	1,397
Residential real estate	3,989		5,037	100	4,387	405
Consumer	69		70	13	80	32
Agricultural	334		334	—	392	136
Other	455		629	—	481	77
Total	$	24,167	27,127	469	26,147	2,217

-68-

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

(Continued)

NOTE 4 - LOANS (Continued)

	Average Recorded Investment		Interest Income Recognized
December 31, 2015
With no related allowance recorded:
Commercial & industrial	$	1,467	206
Commercial, secured by real estate	18,575		2,229
Residential real estate	4,092		453
Consumer	106		25
Agricultural	81		487
Other	510		82
Total	$	24,831	3,482
With an allowance recorded:
Commercial & industrial	$	370	21
Commercial, secured by real estate	4,007		114
Residential real estate	864		37
Consumer	—		—
Agricultural	—		—
Other	—		—
Total	$	5,241	172
Total:
Commercial & industrial	$	1,837	227
Commercial, secured by real estate	22,582		2,343
Residential real estate	4,956		490
Consumer	106		25
Agricultural	81		487
Other	510		82
Total	$	30,072	3,654

Of the interest income recognized on impaired loans during 2017, 2016, and 2015, approximately $28,000, $51,000, and $96,000, respectively, were recognized on a cash basis. The Company continued to accrue interest on certain loans classified as impaired during 2017, 2016, and 2015 because they were restructured or considered well secured and in the process of collection.

-69-

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

(Continued)

NOTE 4 - LOANS (Continued)

Loan modifications that were classified as troubled debt restructurings during the years ended December 31 were as follows (dollars in thousands):

	2017					2016					2015
	Number of Loans	Pre-Modification Recorded Balance		Post-Modification Recorded Balance		Number of Loans	Pre-Modification Recorded Balance		Post-Modification Recorded Balance		Number of Loans	Pre-Modification Recorded Balance		Post-Modification Recorded Balance
Commercial and industrial	—	$	—	$	—	—	$	—	$	—	—	$	—	$	—
Commercial, secured by real estate	—	—		—		4	2,142		2,215		1	75		74
Residential real estate	1	18		9		6	139		139		7	217		221
Consumer	1	14		14		3	39		39		2	9		9
	2	$	32	$	23	13	$	2,320	$	2,393	10	$	301	$	304

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. Post-modification balances of newly restructured troubled debt by type of modification for the years ended December 31 were as follows (in thousands):

	Term Modification		Rate Modification	Interest Only	Principal Forgiveness	Combination	Total Modifications
December 31, 2017
Commercial & industrial	$	—	—	—	—	—	—
Commercial, secured by real estate	—		—	—	—	—	—
Residential real estate	—		—	—	9	—	9
Consumer	14		—	—	—	—	14
Total	$	14	—	—	9	—	23
December 31, 2016
Commercial & industrial	$	—	—	—	—	—	—
Commercial, secured by real estate	1,539		—	304	—	372	2,215
Residential real estate	38		47	—	—	54	139
Consumer	—		28	—	—	11	39
Total	$	1,577	75	304	—	437	2,393
December 31, 2015
Commercial & industrial	$	—	—	—	—	—	—
Commercial, secured by real estate	74		—	—	—	—	74
Residential real estate	221		—	—	—	—	221
Consumer	9		—	—	—	—	9
Total	$	304	—	—	—	—	304

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

-70-

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

(Continued)

NOTE 4 - LOANS (Continued)

There were no troubled debt restructurings that subsequently defaulted within twelve months of the restructuring date for the years ended December 31, 2016, and 2015. Two commercial, secured by real estate loans to the same borrower totaling $1,236,000 that were modified during the fourth quarter 2016 subsequently defaulted in February 2017.

All troubled debt restructurings are considered impaired loans. The allowance for loan loss on such restructured loans is based on the present value of future expected cash flows.

Approximately $21,000 of impaired loans without a valuation allowance at December 31, 2017 consisted of loans that were modified during 2017 and were determined to be troubled debt restructurings. None of the impaired loans restructured during 2017 had a valuation allowance at December 31, 2017.  Approximately $881,000 of impaired loans without a valuation allowance and $1,168,000 of impaired loans with a valuation allowance at December 31, 2016 consisted of loans that were modified during 2016 and were determined to be troubled debt restructurings.

Mortgage loans sold to and serviced for the Federal Home Loan Mortgage Corporation and other investors are not included in the accompanying consolidated balance sheets.  The unpaid principal balances of those loans at December 31, 2017, 2016 and 2015 were approximately $92,818,000, $100,982,000, and $111,837,000, respectively.

Mortgage servicing right assets are included in core deposit and other intangibles in the consolidated balance sheets.  Amortization of mortgage servicing rights is an adjustment to loan servicing income, which is included with other operating income in the consolidated statements of income.  Activity in the mortgage servicing rights portfolio during the years ended December 31 was as follows (in thousands):

	2017			2016		2015
Balance, beginning of year	$	428		488		591
Amount capitalized to mortgage servicing rights	91			109		78
Amortization of mortgage servicing rights	(123		)	(169	)	(181	)
Balance, end of year	$	396		428		488

NOTE 5 - ACQUIRED CREDIT IMPAIRED LOANS

The following table provides, as of December 31, the major classifications of loans acquired that are accounted for in accordance with FASB ASC 310-30 (in thousands):

	2017		2016
Commercial & industrial	$	1,008	98
Commercial, secured by real estate	4,048		6,305
Residential real estate	2,024		2,471
Consumer	—		17
Agricultural	—		—
Other loans, including deposit overdrafts	402		455
	7,482		9,346
Less allowance for loan losses	—		292
Loans, net	$	7,482	9,054

-71-

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2013

(Continued)

NOTE 5 - ACQUIRED CREDIT IMPAIRED LOANS(continued)

The following table provides the outstanding balance and related carrying amount for acquired impaired loans at December 31 (in thousands):

	2017		2016
Outstanding balance	$	9,065	12,289
Carrying amount	7,482		9,346

Activity during 2017 and 2016 for the accretable discount related to acquired impaired loans is as follows (in thousands):

	2017			2016
Accretable discount, beginning of year	$	1,080		1,503
Accretable discount acquired during period	—			—
Reclass from nonaccretable discount to accretable discount	564			423
Less disposals	(170		)	(5	)
Less accretion	(805		)	(841	)
Accretable discount, end of year	$	669		1,080

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 balance sheets.  Changes in other real estate owned were as follows (in thousands):

	2017			2016
Balance, beginning of year	$	—		846
Additions	974			214
Reductions due to sales	(974		)	(484	)
Reductions due to valuation write downs	—			(576	)
Balance, end of year	$	—		—

The total recorded investment in residential consumer mortgage loans secured by residential real estate that was in the process of foreclosure at December 31, 2017 was $185,000.

NOTE 7 - PREMISES AND EQUIPMENT

Premises and equipment at December 31 are summarized as follows (in thousands):

	2017		2016
Land	$	8,190	8,277
Buildings	31,965		21,400
Equipment	15,648		13,065
Construction in progress	120		7,362
Total	55,923		50,104
Less accumulated depreciation	20,996		19,860
Premises and equipment, net	$	34,927	30,244

Depreciation charged to expense was, $1,549,000 in 2017, $1,210,000 in 2016, and $1,427,000 in 2015.

-72-

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

(Continued)

NOTE 8 - LEASES

Some of the Bank's branches, telephone equipment, and other equipment are leased under agreements expiring at various dates through 2050.  These leases are accounted for as operating leases.  The leases generally provide for renewal options and most require periodic changes in rental amounts based on various indices.  Minimum annual rentals for non-cancelable leases at December 31, 2017 that have terms in excess of one year were as follows (in thousands):

2018	$	321
2019	243
2020	207
2021	161
2022	164
Thereafter	3,363
Total	$	4,459

Rental expense for all leased branches and equipment was approximately $569,000 in 2017, $545,000 in 2016, and $542,000 in 2015.

NOTE 9 - GOODWILL AND OTHER INTANGIBLE ASSETS

There were no changes in goodwill during 2017 and 2016.

Other intangible assets in the consolidated balance sheets at December 31, 2017 and 2016 were as follows (in thousands):

	2017				2016
	Gross Intangible Assets		Accumulated Amortization	Net Intangible Assets	Gross Intangible Assets	Accumulated Amortization	Net Intangible Assets
Core deposit intangibles	$	6,458	3,055	3,403	6,458	2,304	4,154
Mortgage servicing rights	1,279		883	396	1,188	760	428
Total	$	7,737	3,938	3,799	7,646	3,064	4,582

The estimated aggregate future amortization expense for each of the next five years for intangible assets remaining as of December 31, 2017 is as follows (in thousands):

2018	$	848
2019	829
2020	815
2021	800
2022	224

NOTE 10 - AFFORDABLE HOUSING TAX CREDIT LIMITED PARTNERSHIPS

LCNB is a limited partner in limited partnerships that sponsor affordable housing projects utilizing the Low Income Housing Tax Credit (LIHTC) pursuant to Section 42 of the Internal Revenue Code. The purpose of the investments 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 partnerships include the identification, development, and operation of multi-family housing that is leased to qualifying residential tenants.

-73-

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

(Continued)

NOTE 10 - AFFORDABLE HOUSING TAX CREDIT LIMITED PARTNERSHIPS (continued)

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

	2017		2016
Affordable housing tax credit investment	$	3,000	2,000
Less amortization	231		93
Net affordable housing tax credit investment	$	2,769	1,907
Unfunded commitment	$	2,257	1,617

The net affordable housing tax credit investment is included in other assets and the unfunded commitment is included in accrued interest and other liabilities in the Consolidated Balance Sheets.

LCNB expects to fund the unfunded commitment over ten years.

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

	Year ended December 31,
	2017		2016	2015
Tax credits and other tax benefits recognized	$	180	103	14
Tax credit amortization expense included in provision for income taxes	138		81	12

NOTE 11 - TIME DEPOSITS

Contractual maturities of time deposits at December 31, 2017 were as follows (in thousands):

2018	$	64,454
2019	34,893
2020	49,289
2021	32,370
2022	8,667
Thereafter	2,226
	$	191,899

The aggregate amount of time deposits in denominations of $250,000 or more at December 31, 2017 and 2016 was $17,759,000 and $22,410,000, respectively.

-74-

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

(Continued)

NOTE 12 - BORROWINGS

Funds borrowed from the FHLB at December 31 by year of maturity were as follows (dollars in thousands):

	Outstanding Balance		Average Rate
December 31, 2017
2018	$	248	2.82	%
2019	55		2.82	%
Total	$	303	2.82	%
December 31, 2016
2017	$	295	2.82	%
2018	248		2.82	%
2019	55		2.82	%
Total	$	598	2.82	%

All advances from the FHLB are secured by a blanket pledge of the Company’s 1-4 family first lien mortgage loans in the amount of approximately $217 million and $229 million at December 31, 2017 and 2016, respectively.  Additionally, the Company was required to hold minimum levels of FHLB stock, based on the outstanding borrowings.  Total remaining borrowing capacity, including short-term borrowing arrangements, at December 31, 2017 was approximately $56.3 million.  One of the factors limiting remaining borrowing capacity is ownership of FHLB stock.  The Company could increase its remaining borrowing capacity by purchasing additional FHLB stock.

Short-term borrowings at December 31 were as follows (dollars in thousands):

	2017				2016
	Amount		Rate		Amount		Rate
Line of credit	$	—	—	%	$	—	—	%
FHLB short-term advance	47,000		1.43	%	25,000		0.63	%
Repurchase agreements	—		—	%	17,040		0.10	%
	$	47,000	1.43	%	$	42,040	0.42	%

At December 31, 2017, the Company had short-term borrowing arrangements with three financial institutions and the Federal Home Loan Bank of Cincinnati ("FHLB").  The first arrangement is a short-term line of credit for a maximum amount of $10 million at the interest rate in effect at the time of the borrowing.  The second arrangement provides that the Company can borrow up to $10 million in federal funds at the interest rate in effect at the time of the borrowing.  The third arrangement is a short-term line of credit for a maximum amount of $20 million at an interest rate equal to the lending institution’s federal funds rate plus a spread of 50 basis points.

The Company has two short-term borrowing arrangements with the FHLB - a Cash Management Advance arrangement and a Repo Advance arrangement. Under the terms of the Cash Management Advance program, the Company can borrow up to $65.3 million in short-term advances, subject to total remaining borrowing capacity limitations.  The Company has the option of selecting a variable rate of interest for up to 90 days or a fixed rate of interest for up to 30 days.   This agreement expires on August 24, 2018. Under the Repo Advance program, the Company can borrow up to $65.3 million in advances, subject to total remaining borrowing capacity limitations, with terms ranging from one day to one year. Prepayment is not permitted. This agreement expires on December 12, 2018. The interest rate for both the Cash Management Advance and Repo Advance programs is the published rate in effect at the time of the advance.  

-75-

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2013

(Continued)

NOTE 12 - BORROWINGS(continued)

The repurchase agreements product was discontinued in August 2017. Repurchase agreements were an option customers could use in managing their cash positions and matured the next business day after issuance.  Repurchase agreements at December 31, 2016 were fully secured by U.S. Agency notes and such collateral securities were held by the Federal Reserve Bank.  The maximum amount of outstanding agreements at any month-end during 2017 and 2016 totaled $16,320,000 and $18,715,000, respectively.  The average balance through August 2017 was $10,515,000 and the average balance for 2016 was $13,891,000.

As of December 31, 2016, approximately $3.1 million of the now discontinued repurchase agreements outstanding were held by a company owned by a member of the Company’s Board of Directors.

NOTE 13 - INCOME TAXES

The provision for federal income taxes consists of (in thousands):

	2017			2016	2015
Income taxes currently payable	$	3,018		3,515	4,280
Revaluation of net deferred tax liability	(224		)	—	—
Deferred income tax provision (benefit)	1,478			928	(58	)
Provision for income taxes	$	4,272		4,443	4,222

A reconciliation between the statutory income tax and the Company's effective tax rate follows:

	2017		2016		2015
Statutory tax rate	34.0	%	34.0	%	34.0	%
Increase (decrease) resulting from -
Tax exempt interest	(6.0	)%	(6.3	)%	(6.0	)%
Tax exempt income on bank owned life insurance	(1.7	)%	(1.5	)%	(1.4	)%
Revaluation of net deferred tax liability	(1.3	)%	—	%	—	%
Captive insurance premium income	(0.9	)%	—	%	—	%
Other – net	0.7	%	0.1	%	0.3	%
Effective tax rate	24.8	%	26.3	%	26.9	%

-76-

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

(Continued)

NOTE 13 - INCOME TAXES (continued)

Deferred tax assets and liabilities, included in the Consolidated Balance Sheets with accrued interest and other liabilities in 2017 and other assets in 2016, consist of the following at December 31 (in thousands):

	2017			2016
Deferred tax assets:
Allowance for loan losses	$	715		1,223
Net unrealized losses on investment securities available-for-sale	707			1,369
Fair value adjustment on loans acquired from merger with First Capital	238			592
Pension and deferred compensation	760			1,157
Other	471			546
	2,891			4,887
Deferred tax liabilities:
Depreciation of premises and equipment	(1,672		)	(1,332	)
Amortization of intangibles	(1,030		)	(1,567	)
Prepaid expenses	(210		)	—
Deferred loan fees	(1		)	(2	)
FHLB stock dividends	(216		)	(351	)
Fair value adjustment on securities acquired from merger with First Capital	(9		)	(19	)
	(3,138		)	(3,271	)
Net deferred tax (liabilities) assets	$	(247	)	1,616

As of December 31, 2017 and 2016 there were no unrecognized tax benefits and the Company does not anticipate the total amount of unrecognized tax benefits will significantly change within the next twelve months.  There were no amounts recognized for interest and penalties in the consolidated statements of income for the three-year period ended December 31, 2017.

The Company is no longer subject to examination by federal tax authorities for years before 2014.

The Tax Cuts and Jobs Act ("Tax Act") was enacted on December 22, 2017. Among other changes, the Tax Act reduces the US Federal corporate tax rate from 35% to 21%. At December 31, 2017, the Company has substantially completed its accounting for the tax effects of enactment of the Tax Act. For deferred tax assets and liabilities, amounts were remeasured based on the rates expected to reverse in the future, which is now 21%. The Company continues to analyze certain aspects of the Tax Act and further refinements are possible, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts, although LCNB management does not expect these adjustments to materially impact its financial statements.

NOTE 14 - 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.  The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument 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.

-77-

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

(Continued)

NOTE 14 - COMMITMENTS AND CONTINGENT LIABILITIES (continued)

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 December 31 were as follows (in thousands):

	2017		2016
Commitments to extend credit:
Commercial loans	$	18,964	10,350
Other loans:
Fixed rate	2,747		4,425
Adjustable rate	1,150		1,044
Unused lines of credit:
Fixed rate	20,984		9,731
Adjustable rate	90,147		80,222
Unused overdraft protection amounts on demand and NOW accounts	16,441		17,123
Standby letters of credit	294		657
	$	150,727	123,552

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 or agreement.  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.

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

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 December 31, 2017 totaled approximately $40,000.

The Company and the Bank 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 LCNB's consolidated financial position or results of operations.

-78-

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

(Continued)

NOTE 15 - REGULATORY MATTERS

The Federal Reserve Act requires depository institutions to maintain cash reserves with the Federal Reserve Bank.  In 2017 and 2016, the Bank maintained average reserve balances of $7,924,000 and $10,903,000, respectively.  The reserve balances at December 31, 2017 and 2016 were $1,422,000 and $4,313,000, respectively.

The principal source of income and funds for LCNB Corp. is dividends paid by the Bank.  The payment of dividends is subject to restriction by regulatory authorities.  For 2018, the restrictions generally limit dividends to the aggregate of net income for the year 2018 plus the net earnings retained for 2017 and 2016.  In addition, dividend payments may not reduce capital levels below minimum regulatory guidelines. At December 31, 2017, approximately $18,865,000 of the Bank’s earnings retained was available for dividends in 2018 under this guideline.  Dividends in excess of these limitations would require the prior approval of the Comptroller of the Currency.

The Company (consolidated) and the Bank must meet certain minimum capital requirements set by federal banking agencies.  Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a material effect on the Company's and Bank's financial statements.  The Company’s and Bank’s capital amounts and classification are also subject to qualitative judgments by regulators about components, risk weightings, and other factors.

A new rule requiring a Capital Conservation Buffer began phase-in on January 1, 2016 and will be fully implemented at the beginning of 2019. 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.

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

	Minimum Requirement		Minimum Requirement with Capital Conservation Buffer for 2017		To Be Considered Well-Capitalized
Ratio of Common Equity Tier 1 Capital to risk-weighted assets	4.5	%	5.75	%	6.5	%
Ratio of tier 1 capital to risk-weighted assets	6.0	%	7.25	%	8.0	%
Ratio of total capital (tier 1 capital plus tier 2 capital) to risk-weighted assets	8.0	%	9.25	%	10.0	%
Leverage ratio (tier 1 capital to adjusted quarterly average total assets)	4.0	%	N/A		5.0	%

As of the most recent notification from their regulators, the Company and Bank were categorized as "well-capitalized" under the regulatory framework for prompt corrective action.  Management believes that no conditions or events have occurred since the last notification that would change the Bank's category.

-79-

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

(Continued)

NOTE 15 - REGULATORY MATTERS (continued)

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

	2017					2016
	Consolidated Company			Bank		Consolidated Company		Bank
Regulatory Capital:
Shareholders' equity	$	150,271		148,163		142,944		141,325
Goodwill and other intangible assets	(32,906		)	(32,906	)	(32,676	)	(32,676	)
Accumulated other comprehensive loss	2,828			2,859		2,617		2,605
Tier 1 risk-based capital	120,193			118,116		112,885		111,254
Eligible allowance for loan losses	3,403			3,403		3,575		3,575
Total risk-based capital	$	123,596		121,519		116,460		114,829
Capital Ratios:
Common Equity Tier 1 Capital to risk-weighted assets	13.29		%	13.07	%	13.00	%	12.82	%
Tier 1 capital to risk-weighted assets	13.29		%	13.07	%	13.00	%	12.82	%
Total capital (tier 1 capital plus tier 2 capital) to risk-weighted assets	13.66		%	13.45	%	13.41	%	13.24	%
Leverage ratio (tier 1 capital to adjusted quarterly average total assets)	9.51		%	9.36	%	8.81	%	8.69	%

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

NOTE 16 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Changes in accumulated other comprehensive income (loss) for 2017 and 2016 were as follows (in thousands):

	2017							2016
	Unrealized Gains and Losses on Available-for-Sale Securities			Changes in Pension Plan Assets and Benefit Obligations		Total		Unrealized Gains and Losses on Available-for-Sale Securities		Changes in Pension Plan Assets and Benefit Obligations		Total
Balance at beginning of year	$	(2,633	)	16		(2,617	)	469		(233	)	236
Before reclassifications	585			(158	)	427		(2,390	)	249		(2,141	)
Reclassifications	(152		)	—		(152	)	(712	)	—		(712	)
Balance at end of year	$	(2,200	)	(142	)	(2,342	)	(2,633	)	16		(2,617	)

-80-

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016

(Continued)

NOTE 16 - ACCUMULATED OTHER COMPREHENSIVE INCOME (continued)

Reclassifications out of accumulated other comprehensive income (loss) during 2017 and 2016 and the affected line items in the consolidated statements of income were as follows (in thousands):

	2017		2016	Affected Line Item in the Consolidated Statements of Income
Realized gain on sales of securities	$	233	1,082	Net gain on sale of securities
Less provision for income taxes	81		370	Provision for income taxes
Reclassification adjustment, net of taxes	$	152	712

NOTE 17 - RETIREMENT PLANS

Prior to January 1, 2009, the Company had a single-employer qualified noncontributory defined benefit retirement plan that covered substantially all regular full-time employees.  Effective January 1, 2009, the Company redesigned the plan and merged it into a multiple-employer plan, which is accounted for as a multi-employer plan because assets contributed by an employer are not segregated in a separate account or restricted to provide benefits only to employees of that employer.  Employees hired on or after January 1, 2009 are not eligible to participate in this plan.

Effective February 1, 2009, the Company amended the plan to reduce benefits for those whose age plus vesting service equaled less than 65 at that date.  Also effective February 1, 2009, an enhanced 401(k) plan was made available to those hired on or after January 1, 2009 and to those who received benefit reductions from the amendments to the noncontributory defined benefit retirement plan.  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 company contribution of 3% of each individual employee’s annual compensation.  Employees who received a benefit reduction under the retirement plan amendments receive an automatic contribution of 5% or 7% of annual compensation, depending on the sum of an employee’s age and vesting service, into the 401(k) plan, regardless of the contributions made by the employees.  This contribution is made annually and these employees will not receive any employer matches to their 401(k) contributions.

Certain information pertaining to the qualified noncontributory defined benefit retirement plan is as follows:

Legal name	Pentegra Defined Benefit Plan for Financial Institutions
Plan's employer identification number	13-5645888
Plan number	333

The plan is at least 80% funded as of July 1, 2017 and 2016.  A funding improvement or rehabilitation plan has not been implemented, nor has a surcharge been paid to the plan. The Company’s contributions to the qualified noncontributory defined benefit retirement plan do not represent more than 5% of total contributions to the plan.

Funding and administrative costs of the qualified noncontributory defined benefit retirement plan and 401(k) plan charged to salaries and employee benefits in the consolidated statements of income for the years ended December 31 were as follows (in thousands):

	2017		2016	2015
Qualified noncontributory defined benefit retirement plan	$	1,054	969	984
401(k) plan	374		359	346

The Company expects a minimum contribution of $224,000 to the qualified noncontributory defined benefit retirement plan in 2018.  The Company expects to contribute $426,000 to the 401(k) plan in 2018.

-81-

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

(Continued)

NOTE 17 - RETIREMENT PLANS (continued)

Citizens National had a qualified noncontributory defined benefit pension plan which covered employees hired before May 1, 2005.  The Company assumed this plan at the time of the merger. At December 31, 2017, the amount of the liability for this plan was $128,000, representing the funded status of the plan.

The Bank has a benefit plan which permits eligible officers to defer a portion of their compensation.  The deferred compensation balance, which accrues interest at 8% annually, is distributable in cash after retirement or termination of employment.  The amount of such deferred compensation liability at December 31, 2017 and 2016 was $3,406,000 and $3,407,000, respectively.

The Bank also has supplemental income plans which provide certain employees an amount based on a percentage of average compensation, payable in accordance with individually defined schedules upon retirement. The projected benefit obligation included in other liabilities for the supplemental income plans at December 31, 2017 and 2016 is $1,249,000 and $1,284,000, respectively. The average discount rate used to determine the present value of the obligations was approximately 5.2% in 2017 and 5.2% in 2016. The service cost associated with the plans was $0 for 2017, $0 for 2016, and $183,000 for 2015.  Interest costs were $62,000, $63,000, and $56,000 for 2017, 2016, and 2015, respectively.

The deferred compensation plan and supplemental income plans are nonqualified and unfunded. Participation in each plan is limited to a select group of management.

Effective February 1, 2009, the Company established a nonqualified defined benefit retirement plan, which is also unfunded, for certain highly compensated employees.  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 years ended December 31 are summarized as follows (in thousands):

	2017		2016	2015
Service cost	$	—	41	38
Interest cost	69		78	68
Amortization of unrecognized (gain) loss	16		168	171
Net periodic pension cost	$	85	287	277

A reconciliation of changes in the projected benefit obligation of the nonqualified defined benefit retirement plan at December 31 follows (in thousands):

	2017			2016		2015
Projected benefit obligation at beginning of year	$	1,727		1,843		1,741
Service cost	—			41		38
Interest cost	69			78		68
Actuarial (gain) or loss	238			(209	)	10
Benefits paid	(63		)	(26	)	(14	)
Projected benefit obligation at end of year	$	1,971		1,727		1,843

Amounts recognized in other liabilities in the consolidated balance sheets for the nonqualified defined benefit retirement plan at December 31, 2017 and 2016 were $1,971,000 and $1,727,000, respectively.

The accumulated benefit obligation for the nonqualified defined benefit retirement plan at December 31, 2017 and 2016 was $1,971,000 and $1,727,000, respectively.

-82-

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

(Continued)

NOTE 17 - RETIREMENT PLANS (continued)

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

	2017		2016		2015
Net actuarial (gain)/loss	$	141	(16	)	233
Past service cost	—		—		—
	$	141	(16	)	233

The estimated unrecognized net actuarial gain that will be amortized from accumulated other comprehensive income into net periodic benefit cost during 2018 for the nonqualified defined benefit retirement plan is $16,000.

Key weighted-average assumptions used to determine the benefit obligation and net periodic pension costs for the nonqualified defined benefit retirement plan for the years ended December 31 were as follows:

	2017		2016		2015
Benefit obligation:
Discount rate	3.60	%	4.14	%	4.34	%
Salary increase rate	2.00	%	2.00	%	2.00	%
Net periodic pension cost:
Discount rate	4.14	%	4.34	%	3.95	%
Salary increase rate	2.00	%	2.00	%	2.00	%
Amortization period in years	1.00		1.00		1.98

The nonqualified defined benefit retirement plan is not funded.  Therefore no contributions will be made in 2018.  Estimated future benefit payments reflecting expected future service for the years ended after December 31, 2017 are (in thousands):

2018	$	130
2019	130
2020	130
2021	130
2022	130
2023-2027	633

NOTE 18 - 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 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 approved 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.

-83-

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

(Continued)

NOTE 18 - STOCK-BASED COMPENSATION (continued)

LCNB has not granted stock options since 2012. Option awards 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 December 31, 2017 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	4,356	$	9.00	1.1	4,356	$	9.00	1.1
$11.00 - 12.99	15,909	12.08		2.6	15,909	12.08		2.6
$17.00 - 18.99	—	—		0.0	—	—		0.0
	20,265	11.42		2.3	20,265	11.42		2.3

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

	2017			2016				2015
	Options		Weighted Average Exercise Price	Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price
Outstanding at January 1,	24,669		12.17	83,861		$	12.39	99,810		$	12.16
Granted	—		—	—		—		—		—
Exercised	(3,398	)	14.94	(51,390	)	11.53		(13,449	)	11.31
Expired	(1,006	)	17.88	(7,802	)	18.76		(2,500	)	9.00
Outstanding at December 31,	20,265		11.42	24,669		12.17		83,861		12.39
Exercisable at December 31,	20,265		11.42	22,924		12.13		75,072		12.40

The following table provides information related to stock options exercised during the years indicated (in thousands):

	2017		2016	2015
Intrinsic value of options exercised	$	25	288	67
Cash received from options exercised	51		592	152
Tax benefit realized from options exercised	5		59	13

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 December 31, 2017 that were “in the money” (market price greater than exercise price) was $183,000.  The aggregate intrinsic value at that date for only the options that were exercisable was $183,000.  The aggregate intrinsic value for options outstanding at December 31, 2016 that were in the money was $273,000 and the aggregate intrinsic value at that date for only the options that were exercisable was $255,000. The intrinsic value changes based on changes in the market value of the Company’s stock.

Total expense related to options included in salaries and wages in the consolidated statements of income for the years ended December 31, 2017, 2016, and 2015 was $1,000, $5,000, and $19,000, respectively. The related tax benefit for 2017, 2016, and 2015 was $0, $2,000, and $6,000, respectively. Compensation costs related to option awards were recognized in full during the first quarter 2017.

-84-

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

(Continued)

NOTE 18 - STOCK-BASED COMPENSATION (continued)

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

	2017				2016				2015
	Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value		Shares	Weighted Average Grant Date Fair Value
Outstanding at January 1,	8,624		$	15.47	16,038		$	15.47	—	$	—
Granted	4,027		22.60		—		—		16,038	15.47
Vested	(3,834	)	16.73		(7,414	)	15.47		—	—
Forfeited	—		—		—		—		—	—
Outstanding at December 31,	8,817		$	16.44	8,624		$	15.47	16,038	$	15.47

Total expense related to restricted stock awards included in salaries and wages in the consolidated statements of income for the years ended December 31, 2017, 2016, and 2015 was $75,000, $90,000, and $90,000 respectively. The related tax benefit for the years ended December 31, 2017, 2016, and 2015 was $26,000, $31,000, and $31,000, respectively. Unrecognized compensation expense for restricted stock awards was $84,000 at December 31, 2017 and is expected to be recognized over a period of 4.2 years.

NOTE 19 - EARNINGS PER SHARE

LCNB has granted restricted stock awards with non-forfeitable dividend rights, which are considered participating securities. Accordingly, earnings per share is computed using the two-class method as required by FASB ASC 260-10-45. Basic earnings per common share is calculated by dividing net income allocated to common shareholders by the weighted average number of common shares outstanding during the period, which excludes the participating securities.  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.  

-85-

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

(Continued)

NOTE 19 - EARNINGS PER SHARE (continued)

Earnings per share for the years ended December 31 were calculated as follows (in thousands, except share and per share data):

	2017		2016	2015
Net income	$	12,972	12,482	11,474
Less allocation of earnings and dividends to participating securities	7		13	—
Net income allocated to common shareholders	12,965		12,469	11,474
Weighted average common shares outstanding, gross	10,011,358		9,958,300	9,704,965
Less average participating securities	5,783		10,243	—
Weighted average number of shares outstanding used in the calculation of basic earnings per common share	10,005,575		9,948,057	9,704,965
Add dilutive effect of:
Stock options	6,936		10,765	17,174
Stock warrants	—		17,548	89,328
Adjusted weighted average number of shares outstanding used in the calculation of diluted earnings per common share	10,012,511		9,976,370	9,811,467
Earnings per common share:
Basic	$	1.30	1.26	1.18
Diluted	1.29		1.25	1.17

Options to purchase 12,962 shares of common stock at a weighted average price of $18.41 per share were outstanding at December 31, 2015 and 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 prices of the common shares. There were no such options at December 31, 2017 or 2016.

NOTE 20 - RELATED PARTY TRANSACTIONS

LCNB has entered into related party transactions with various directors and executive officers. Management believes these transactions do not involve more than a normal risk of collectibility or present other unfavorable features.  The following table provides a summary of the loan activity for these officers and directors for the years ended December 31 (in thousands):

	2017			2016
Beginning balance	$	1,447		1,091
New loans and advances	669			64
Change in composition of related parties	—			506
Reductions	(246		)	(214	)
Ending Balance	$	1,870		1,447

Deposits from executive officers, directors and related interests of such persons held by the Company at December 31, 2017 and 2016 amounted to $5,698,000 and $4,618,000, respectively.

-86-

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

(Continued)

NOTE 21 - FAIR VALUE OF FINANCIAL INSTRUMENTS

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. Methods and significant assumptions used to estimate fair value are as follows:

• Fair value for U.S. Treasury notes are determined based on market quotations (level 1).

• Fair values for the other debt securities are 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.  

• Fair value for trust preferred and equity securities are determined based on market quotations (level 1). These securities are not priced by the pricing service.

• LCNB has investments in five mutual funds. These investments are not priced by the pricing service. Investments in two of the mutual funds are measured at fair value using net asset values ("NAV") per share as a practical expedient and are not required to be classified in the fair value hierarchy.  These funds can be redeemed at any time at their current NAVs. Two other mutual funds are traded in active markets and their fair values are based on market quotations (level 1). The investment in the remaining mutual fund, which 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.

-87-

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

(Continued)

NOTE 21 - FAIR VALUE OF FINANCIAL INSTRUMENTS(continued)

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

				Fair Value Measurements at the End of the Reporting Period Using
		Fair Value Measurements		Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
December 31, 2017
Recurring fair value measurements:
Investment securities available-for-sale:
U.S. Treasury notes		$	2,259	2,259	—	—
U.S. Agency notes		83,261		—	83,261	—
U.S. Agency mortgage-backed securities		67,153		—	67,153	—
Municipal securities:
Non-taxable		102,174		—	102,174	—
Taxable		20,366		—	20,366	—
Mutual funds		1,023		23	1,000	—
Mutual funds measured at net asset value (a)		1,519
Trust preferred securities		50		50	—	—
Equity securities		667		667	—	—
Total recurring fair value measurements		$	278,472	2,999	273,954	—
Nonrecurring fair value measurements:
Impaired loans		$	3,359	—	—	3,359
December 31, 2016
Recurring fair value measurement:
Investment securities available-for-sale:
U.S. Treasury notes		$	28,145	28,145	—	—
U.S. Agency notes		85,400		—	85,400	—
U.S. Agency mortgage-backed securities		71,047		—	71,047	—
Municipal securities:
Non-taxable		113,015		—	113,015	—
Taxable		19,845		—	19,845	—
Mutual funds		1,000		—	1,000	—
Mutual funds measured at net asset value (a)		1,482
Trust preferred securities		48		48	—	—
Equity securities		677		677	—	—
Total recurring fair value measurements		$	320,659	28,870	290,307	—
Nonrecurring fair value measurements:
Impaired loans		$	5,340	—	—	5,340
(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 Balance Sheets.

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LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

(Continued)

NOTE 21 - FAIR VALUE OF FINANCIAL INSTRUMENTS(continued)

The following table presents quantitative information about unobservable inputs used in nonrecurring Level 3 fair value measurements at December 31, 2017 and 2016 (dollars in thousands):

					Range
	Fair Value		Valuation Technique	Unobservable Inputs	High		Low		Weighted Average
2017
Impaired loans	$	3,359	Estimated sales price	Adjustments for comparable properties, discounts to reflect current market conditions	Not applicable
			Discounted cash flows	Discount rate	8.25	%	3.25	%	6.27	%
2016
Impaired loans	$	5,340	Estimated sales price	Adjustments for comparable properties, discounts to reflect current market conditions	Not applicable
			Discounted cash flows	Discount rate	8.25	%	4.50	%	5.56	%

-89-

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

(Continued)

NOTE 21 - FAIR VALUE OF FINANCIAL INSTRUMENTS(continued)

Carrying amounts and estimated fair values of financial instruments as of December 31 were 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)
2017
FINANCIAL ASSETS:
Cash and cash equivalents	$	25,386	25,386	25,386	—	—
Investment securities, held-to-maturity	32,571		32,350	—	—	32,350
Federal Reserve Bank stock	2,732		2,732	2,732	—	—
Federal Home Loan Bank stock	3,638		3,638	3,638	—	—
Loans, net	845,657		813,368	—	—	813,368
Accrued interest receivable	3,511		3,511	—	3,511	—
FINANCIAL LIABILITIES:
Deposits	1,085,821		1,087,086	894,046	193,040	—
Short-term borrowings	47,000		47,000	47,000	—	—
Long-term debt	303		307	—	307	—
Accrued interest payable	329		329	—	329	—
2016
FINANCIAL ASSETS:
Cash and cash equivalents	$	18,865	18,865	18,865	—	—
Investment securities, held-to-maturity	41,003		40,490	—	—	40,490
Federal Reserve Bank stock	2,732		2,732	2,732	—	—
Federal Home Loan Bank stock	3,638		3,638	3,638	—	—
Loans, net	816,228		799,791	—	—	799,791
Accrued interest receivable	3,559		3,559	—	3,559	—
FINANCIAL LIABILITIES:
Deposits	1,110,905		1,113,187	896,147	217,040	—
Short-term borrowings	42,040		42,040	42,040	—	—
Long-term debt	598		614	—	614	—
Accrued interest payable	307		307	—	307	—

The fair values of off-balance-sheet financial instruments such as loan commitments and letters of credit are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements. The fair values of such instruments were not material at December 31, 2017 and 2016.

-90-

LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

(Continued)

NOTE 21 - FAIR VALUE OF FINANCIAL INSTRUMENTS(continued)

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 the Company.  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 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.

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LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

(Continued)

NOTE 22 – QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following table sets forth certain quarterly results for the years ended December 31, 2017 and 2016 (dollars in thousands, except per share data):

	Three Months Ended
	March 31		June 30	Sep. 30		Dec. 31
2017
Interest income	$	10,864	10,934	11,055		11,610
Interest expense	877		861	908		953
Net interest income	9,987		10,073	10,147		10,657
Provision for loan losses	15		222	(12	)	(10	)
Net interest income after provision	9,972		9,851	10,159		10,667
Total non-interest income	2,430		2,790	2,659		2,579
Total non-interest expenses	7,968		8,611	8,672		8,612
Income before income taxes	4,434		4,030	4,146		4,634
Provision for income taxes	1,188		1,027	1,040		1,017
Net income	$	3,246	3,003	3,106		3,617
Earnings per common share:
Basic	$	0.32	0.30	0.31		0.37
Diluted	0.32		0.30	0.31		0.36
2016
Interest income	$	10,621	11,008	10,895		11,226
Interest expense	849		883	885		887
Net interest income	9,772		10,125	10,010		10,339
Provision for loan losses	90		396	372		55
Net interest income after provision	9,682		9,729	9,638		10,284
Total non-interest income	2,642		2,750	2,846		2,615
Total non-interest expenses	8,292		8,468	8,593		7,908
Income before income taxes	4,032		4,011	3,891		4,991
Provision for income taxes	1,068		1,043	995		1,337
Net income	$	2,964	2,968	2,896		3,654
Earnings per common share:
Basic	$	0.30	0.30	0.29		0.37
Diluted	0.30		0.29	0.29		0.37

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LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

(Continued)

NOTE 23 - PARENT COMPANY FINANCIAL INFORMATION

Condensed financial information for LCNB Corp., parent company only, follows (in thousands):

Condensed Balance Sheets:
December 31,	2017		2016
Assets:
Cash on deposit with subsidiary	$	308	491
Investment securities available-for-sale, at fair value	919		893
Investment in subsidiaries	148,850		141,325
Other assets	194		235
Total assets	$	150,271	142,944
Liabilities	$	—	—
Shareholders' equity	150,271		142,944
Total liabilities and shareholders' equity	$	150,271	142,944

Condensed Statements of Income
Year ended December 31,	2017		2016	2015
Income:
Dividends from subsidiaries	$	6,800	7,300	5,400
Interest and dividends	36		38	58
Net gain on sales of securities	14		8	254
Total income	6,850		7,346	5,712
Total expenses	1,290		1,014	1,016
Income before income tax expense/benefit and equity in undistributed income of subsidiaries	5,560		6,332	4,696
Income tax benefit	380		336	250
Equity in undistributed income of subsidiaries	7,032		5,814	6,528
Net income	$	12,972	12,482	11,474

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LCNB CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

(Continued)

NOTE 23 - PARENT COMPANY FINANCIAL INFORMATION (continued)

Condensed Statements of Cash Flows
Year ended December 31,	2017			2016		2015
Cash flows from operating activities:
Net income	$	12,972		12,482		11,474
Adjustments for non-cash items -
Increase in undistributed income of subsidiaries	(7,032		)	(5,814	)	(6,528	)
Other, net	84			126		42
Net cash flows provided by operating activities	6,024			6,794		4,988
Cash flows from investing activities:
Purchases of securities available-for-sale	(54		)	(177	)	(215	)
Proceeds from maturities of securities available-for-sale	50			55		—
Proceeds from sales of available-for-sale securities	43			173		1,217
Investments in subsidiaries	(250		)	—		—
Cash paid for business acquisition	—			—		(3,757	)
Net cash flows provided by (used in) investing activities	(211		)	51		(2,755	)
Cash flows from financing activities:
Proceeds from issuance of common stock	360			379		390
Repurchase of stock warrants	—			(1,545	)	—
Cash dividends paid on common stock	(6,407		)	(6,375	)	(6,239	)
Other	51			653		165
Net cash flows used in financing activities	(5,996		)	(6,888	)	(5,684	)
Net change in cash	(183		)	(43	)	(3,451	)
Cash at beginning of year	491			534		3,985
Cash at end of year	$	308		491		534

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LCNB CORP. AND SUBSIDIARIES

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

None.

Item 9A.  Controls and Procedures

Disclosure Controls and Procedures

An evaluation of the effectiveness of LCNB’s internal controls over financial reporting was carried out under the supervision and with the participation of LCNB’s management, including the Chief Executive Officer and Chief Financial Officer.  Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that LCNB’s disclosure controls and procedures were effective as of the end of the period covered by this annual report.

Internal Control Over Financial Reporting

Information required by this item is set forth in the “Report of Management’s Assessment of Internal Control over Financial Reporting” and the “Report of Independent Registered Public Accounting Firm” included in Item 8 of this 2017 Annual Report on Form 10-K.

Changes in Internal Control over Financial Reporting

During the fourth quarter 2017, 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.

Item 9B.  Other Information

None.

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LCNB CORP. AND SUBSIDIARIES

PART III

Portions of the Company’s Definitive Proxy Statement (the “Proxy Statement”) included in the Notice of Annual Meeting of Shareholders to be held April 24, 2018, which Proxy Statement will be mailed to shareholders within 120 days from the end of the fiscal year ended December 31, 2017, are incorporated by reference into Part III.

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this item concerning the Executive Officers and Directors of the Registrant is incorporated herein by reference under the caption "Directors and Executive Officers" of the Proxy Statement.

The information required by this item concerning the Audit Committee and Code of Business Conduct and Ethics is incorporated herein by reference under the captions "Board of Directors Meetings and Committees," "Audit Committee Report," and "Code of Ethics" of the Proxy Statement.

The information required by this item concerning Section 16(a) Beneficial Ownership Reporting Compliance is incorporated herein by reference under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" of the proxy Statement.

Item 11. Executive Compensation

The information contained in the Proxy Statement under the captions "Board of Directors Meetings and Committees" "Compensation Committee Interlocks and Insider Participation" "Equity Compensation Plan Information," "Compensation of Executive Officers," and "Compensation Committee Report on Executive Compensation" is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information contained in the Proxy Statement under the captions "Market Price of Stock and Dividend Data" and "Voting Securities and Principal Holders" is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information contained in the Proxy Statement under the captions "Election of Directors," "Directors and Executive Officers," "Board of Directors Meetings and Committees," and "Certain Relationships and Related Transactions" is incorporated herein by reference.

Item 14.  Principal Accounting Fees and Services

The information contained in the Proxy Statement under the captions "Independent Registered Accounting Firm" and "Board of Directors Meetings and Committees" is incorporated herein by reference.

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LCNB CORP. AND SUBSIDIARIES

PART IV

Item 15.  Exhibits, Financial Statement Schedules

(a)1.	Financial Statements
	REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
	FINANCIAL STATEMENTS
	Consolidated Balance Sheets as of December 31, 2017 and 2016.
	Consolidated Statements of Income for the Years Ended December 31, 2017, 2016, and 2015.
	Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2017, 2016, and 2015.
	Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2017, 2016, and 2015.
	Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016, and 2015.
	Notes to Consolidated Financial Statements
2.	Financial Statement Schedules – None
3.	Exhibits required by Item 601 Regulation S-K.

(a) Exhibit No.	Exhibit Description
2.1	Agreement and Plan of Merger dated as of October 9, 2012 by and between LCNB Corp. and First Capital Bancshares, Inc. – incorporated by reference to the Registrant's Form 8-K filed on October 9, 2012, Exhibit 2.1.
2.2	Stock Purchase Agreement between LCNB Corp. and Colonial Banc Corp. dated as of October 28, 2013 - incorporated by reference to the Registrant's Current Report on Form 8-K filed on October 28, 2013, Exhibit 2.1.
2.3	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.
2.4	Agreement and Plan of Merger dated as of December 20, 2017 by and between LCNB Corp. and Columbus First Bancorp, Inc. - incorporated by reference to the Registrant's Current Report on Form 8-K filed on December 21, 2017, 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.
10.5	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.
10.7	Form of Restricted Share Grant Agreement under the LCNB Corp. 2015 Ownership Incentive Plan - incorporated by reference to Registrant's 2015 Form 10-K, Exhibit 10.7.
14.1	LCNB Corp. Code of Business Conduct and Ethics - incorporated by reference to Registrant's 2003 Form 10-K, Exhibit 14.1.
14.2	LCNB Corp. Code of Ethics for Senior Financial Officers - Incorporated by reference to Registrant's 2003 Form 10-K, Exhibit 14.2.

-97-

LCNB CORP. AND SUBSIDIARIES

(a) Exhibit No.	Exhibit Description
21	LCNB Corp. subsidiaries.
23	Consent of Independent Registered Public Accounting Firm.
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 Annual Report on Form 10-K for the year ended December 31, 2017 is formatted in Extensible Business Reporting Language:  (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements, tagged as blocks of text.

-98-

LCNB CORP. AND SUBSIDIARIES

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

(Registrant)

/s/ Steve P. Foster

Steve P. Foster

Chief Executive Officer & President

March 9, 2018

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

/s/ Steve P. Foster	/s/ William H. Kaufman
Steve P. Foster	William H. Kaufman
Chief Executive Officer, President, & Director	Director
(Principal Executive Officer)	March 9, 2018
March 9, 2018
	/s/ Anne E. Krehbiel
/s/ Robert C. Haines II	Anne E. Krehbiel
Robert C. Haines II	Director
Executive Vice President & Chief Financial	March 9, 2018
Officer (Principal Financial and Accounting
Officer)
March 9, 2018	/s/ John H. Kochensparger III
	John H. Kochensparger III
	Director
/s/ Stephen P. Wilson	March 9, 2018
Stephen P. Wilson
Chairman of the Board of Directors
March 9, 2018	/s/ Valerie S. Krueckeberg
	Valerie S. Krueckeberg
	Director
/s/ Spencer S. Cropper	March 9, 2018
Spencer S. Cropper
Director
March 9, 2018	/s/ George L. Leasure
	George L. Leasure
	Director
	March 9, 2018

-99-

EX-21

EXHIBIT 21

LCNB CORP. SUBSIDIARIES

LCNB National Bank, a national banking association, organized under the laws of the United States, and headquartered in Lebanon, Ohio.

LCNB Risk Management, Inc., organized under the laws of the State of Nevada, and headquartered in Las Vegas, Nevada.

EX-23

EXHIBIT 23

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-103801) dated March 13, 2003, Form S-3 (No. 333-175806) dated July 27, 2011, Form S-3 (No. 333-212599) dated July 20, 2016 and Form S-4 (No. 333-223119) dated March 6, 2018 of LCNB Corp. of our reports dated March 9, 2018 on the consolidated financial statements and internal control over financial reporting of LCNB Corp., which reports appear in this Annual Report on Form 10-K for the year ended December 31, 2017.

/s/ BKD, LLP

BKD, LLP

Cincinnati, Ohio

March 9, 2018

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

In connection with the Annual Report of LCNB Corp. on Form 10-K for the period ending December 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Steve P. Foster, Chief Executive Officer & President of LCNB Corp., certify, that:

1) I have reviewed this annual report on Form 10-K 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 control 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 & President

March 9, 2018

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

In connection with the Annual Report of LCNB Corp. on Form 10-K for the period ending December 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Robert C. Haines II, Executive Vice President & Chief Financial Officer of LCNB Corp., certify, that:

1) I have reviewed this annual report on Form 10-K 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 control 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 &

Chief Financial Officer

March 9, 2018

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 Annual Report of LCNB Corp. (the "Company") on Form 10-K for the period ending December 31, 2017 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. ss. 1350, as adopted pursuant to ss. 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	Robert C. Haines II
Chief Executive Officer and President	Executive Vice President and
	Chief Financial Officer

Date: March 9, 2018

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Document and Entity Information - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Mar. 08, 2018	Jun. 30, 2017
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-K
Document Period End Date	Dec. 31, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	FY
Amendment Flag	false
Entity Common Stock, Shares Outstanding		10,026,203
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Public Float			$ 192,316

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CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
ASSETS:
Cash and due from banks	$ 21,159	$ 18,378
Interest-bearing demand deposits	4,227	487
Total cash and cash equivalents	25,386	18,865
Investment securities:
Available-for-sale, at fair value	278,472	320,659
Held-to-maturity, at cost	32,571	41,003
Federal Reserve Bank stock, at cost	2,732	2,732
Federal Home Loan Bank stock, at cost	3,638	3,638
Loans, net	845,657	816,228
Premises and equipment, net	34,927	30,244
Goodwill	30,183	30,183
Core deposit and other intangibles	3,799	4,582
Bank owned life insurance	27,985	27,307
Other assets	10,288	11,358
TOTAL ASSETS	1,295,638	1,306,799
Deposits:
Non-interest-bearing	283,212	271,332
Interest-bearing	802,609	839,573
Total deposits	1,085,821	1,110,905
Short-term borrowings	47,000	42,040
Long-term debt	303	598
Accrued interest and other liabilities	12,243	10,312
TOTAL LIABILITIES	1,145,367	1,163,855
SHAREHOLDERS' EQUITY:
Common shares - no par value; authorized 19,000,000 shares at December 31, 2017 and 2016; issued 10,776,686 and 10,751,652 shares at December 31, 2017 and 2016, respectively	76,977	76,490
Retained earnings	87,301	80,736
Treasury shares at cost, 753,627 shares at December 31, 2017 and 2016	(11,665)	(11,665)
Accumulated other comprehensive loss, net of taxes	(2,342)	(2,617)
TOTAL SHAREHOLDERS' EQUITY	150,271	142,944
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 1,295,638	$ 1,306,799

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CONSOLIDATED BALANCE SHEETS (Parenthetical) - shares	Dec. 31, 2017	Dec. 31, 2016
SHAREHOLDERS' EQUITY:
Preferred shares, shares authorized (in shares)	1,000,000	1,000,000
Preferred shares, shares outstanding (in shares)	0	0
Common shares, shares authorized (in shares)	19,000,000	19,000,000
Common shares, shares issued (in shares)	10,776,686	10,751,652
Treasury shares at cost (in shares)	753,627	753,627

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CONSOLIDATED STATEMENTS OF INCOME - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
INTEREST INCOME:
Interest and fees on loans	$ 36,571	$ 35,600	$ 35,285
Interest on investment securities:
Taxable	4,328	4,582	4,197
Non-taxable	3,130	3,199	2,848
Other investments	434	369	329
TOTAL INTEREST INCOME	44,463	43,750	42,659
INTEREST EXPENSE:
Interest on deposits	3,378	3,440	3,009
Interest on short-term borrowings	209	38	24
Interest on long-term debt	12	26	295
TOTAL INTEREST EXPENSE	3,599	3,504	3,328
NET INTEREST INCOME	40,864	40,246	39,331
PROVISION FOR LOAN LOSSES	215	913	1,366
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	40,649	39,333	37,965
NON-INTEREST INCOME:
Fiduciary income	3,473	3,286	3,262
Service charges and fees on deposit accounts	5,236	5,008	4,920
Net gains on sales of securities	233	1,082	495
Bank owned life insurance income	867	746	625
Net gains from sales of loans	166	244	343
Other operating income	483	487	478
TOTAL NON-INTEREST INCOME	10,458	10,853	10,123
NON-INTEREST EXPENSE:
Salaries and employee benefits	18,585	18,215	17,593
Equipment expenses	1,172	1,048	1,257
Occupancy expense, net	2,613	2,271	2,307
State financial institutions tax	1,137	1,114	1,001
Marketing	873	696	720
Amortization of intangibles	751	753	700
FDIC premiums	423	547	598
ATM expense	572	721	698
Computer maintenance and supplies	882	790	782
Telephone expense	735	746	707
Contracted services	1,255	1,033	842
Other real estate owned	10	624	489
Merger-related expenses	118	0	643
Other non-interest expense	4,737	4,703	4,055
TOTAL NON-INTEREST EXPENSE	33,863	33,261	32,392
INCOME BEFORE INCOME TAXES	17,244	16,925	15,696
PROVISION FOR INCOME TAXES	4,272	4,443	4,222
NET INCOME	$ 12,972	$ 12,482	$ 11,474
Earnings per common share:
Basic (in dollars per share)	$ 1.30	$ 1.26	$ 1.18
Diluted (in dollars per share)	$ 1.29	$ 1.25	$ 1.17
Weighted average common shares outstanding:
Basic (in shares)	10,005,575	9,948,057	9,704,965
Diluted (in shares)	10,012,511	9,976,370	9,811,467

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Statement of Comprehensive Income [Abstract]
Net income	$ 12,972	$ 12,482	$ 11,474
Other comprehensive income (loss):
Net unrealized gain (loss) on available-for-sale securities (net of tax expense (benefit) of $285, $(1,242), and $(169) for 2017, 2016, and 2015, respectively)	585	(2,390)	(329)
Reclassification adjustment for net realized gain on sale of available-for-sale securities included in net income (net of tax expense of $81, $370, and $168 for 2017, 2016 and 2015, respectively)	(152)	(712)	(327)
Change in nonqualified pension plan unrecognized net gain (loss) and unrecognized prior service cost (net of tax expense (benefit) of $(53), $128, and $55 for 2017, 2016, and 2015, respectively)	(158)	249	107
Other comprehensive income (loss)	275	(2,853)	(549)
TOTAL COMPREHENSIVE INCOME	13,247	9,629	10,925
COMPONENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX, AS OF YEAR-END:
Net unrealized gain (loss) on securities available-for-sale	(2,200)	(2,633)	469
Net unfunded liability for nonqualified pension plan	(142)	16	(233)
Balance at year-end	$ (2,342)	$ (2,617)	$ 236

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Parenthetical) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Other comprehensive income (loss):
Net unrealized gain (loss) on available-for-sale securities, tax expense (benefit)	$ 285	$ (1,242)	$ (169)
Net realized gain on sale of available-for-sale securities included in net income, tax expense (benefit)	81	370	168
Change in nonqualified pension plan unrecognized net gain (loss) and unrecognized prior service cost, tax expense (benefit)	$ (53)	$ 128	$ 55

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - USD ($) $ in Thousands	Total	Common Shares	Retained Earnings	Treasury Shares	Accumulated Other Comprehensive Income (Loss)
Balance (in shares) at Dec. 31, 2014		9,311,318
Balance at beginning of year at Dec. 31, 2014	$ 125,695	$ 67,181	$ 69,394	$ (11,665)	$ 785
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	11,474		11,474
Other comprehensive loss, net of taxes	(549)				(549)
Dividend Reinvestment and Stock Purchase Plan (in shares)		24,610
Dividend Reinvestment and Stock Purchase Plan	390	$ 390
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) expense on exercise and forfeiture of stock options	13	13
Compensation expense relating to stock options	19	$ 19
Compensation expense relating to restricted stock (in shares)		16,038
Compensation expense relating to restricted stock		$ 90
Common stock dividends, $0.64 per share	(6,239)		(6,239)
Balance (in shares) at Dec. 31, 2015		9,925,547
Balance at end of year at Dec. 31, 2015	140,108	$ 76,908	74,629	(11,665)	236
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	12,482		12,482
Other comprehensive loss, net of taxes	(2,853)				(2,853)
Dividend Reinvestment and Stock Purchase Plan (in shares)		21,088
Dividend Reinvestment and Stock Purchase Plan	379	$ 379
Repurchase of stock warrants	(1,545)	$ (1,545)
Exercise of stock options (in shares)		51,390
Exercise of stock options	592	$ 592
Excess tax (benefit) expense on exercise and forfeiture of stock options	61	61
Compensation expense relating to stock options	5	$ 5
Compensation expense relating to restricted stock (in shares)		0
Compensation expense relating to restricted stock	90	$ 90
Common stock dividends, $0.64 per share	(6,375)		(6,375)
Balance (in shares) at Dec. 31, 2016		9,998,025
Balance at end of year at Dec. 31, 2016	142,944	$ 76,490	80,736	(11,665)	(2,617)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	12,972		12,972
Other comprehensive loss, net of taxes	275				275
Dividend Reinvestment and Stock Purchase Plan (in shares)		17,609
Dividend Reinvestment and Stock Purchase Plan	360	$ 360
Exercise of stock options (in shares)		3,398
Exercise of stock options	51	$ 51
Compensation expense relating to stock options	1	$ 1
Compensation expense relating to restricted stock (in shares)		4,027
Compensation expense relating to restricted stock	75	$ 75
Common stock dividends, $0.64 per share	(6,407)		(6,407)
Balance (in shares) at Dec. 31, 2017		10,023,059
Balance at end of year at Dec. 31, 2017	$ 150,271	$ 76,977	$ 87,301	$ (11,665)	$ (2,342)

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Parenthetical) - $ / shares	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Statement of Stockholders' Equity [Abstract]
Common stock dividends (in dollars per share)	$ 0.64	$ 0.64	$ 0.64

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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 12,972	$ 12,482	$ 11,474
Adjustments to reconcile net income to net cash flows from operating activities-
Provision for loan losses	215	913	1,366
Impact Of Tax Cuts And Jobs Act On Accumulated Other Comprehensive Income	486	0	0
Realized gains from sales of loans	(166)	(244)	(343)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investment securities available-for-sale	43,246	92,455	97,981
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options	51	592	$ 152
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR	18,865
CASH AND CASH EQUIVALENTS AT END OF YEAR	$ 25,386	$ 18,865

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 2017

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

LCNB Corp. (the "Company" or “LCNB”), an Ohio corporation formed in December 1998, is a financial holding company whose principal activity is the ownership of LCNB National Bank (the "Bank").  The Bank was founded in 1877 and provides full banking services, including trust and brokerage services, to customers primarily in Southwestern and South Central Ohio.

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of the Company and its subsidiaries. Significant intercompany accounts and transactions are eliminated in consolidation.  The accounting and reporting policies of the Company conform with U.S. generally accepted accounting principles and with general practices in the banking industry.

Certain prior period data presented in the financial statements have been reclassified to conform with the current year presentation. These reclassifications had no effect on net income.

USE OF ESTIMATES

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.

CASH AND CASH EQUIVALENTS

For purposes of reporting cash flows, cash and cash equivalents include cash, balances due from banks, federal funds sold, and interest-bearing demand deposits with original maturities of twelve months or less.  Deposits with other banks routinely have balances greater than FDIC insured limits.  Management considers the risk of loss to be very low with respect to such deposits.

INVESTMENT SECURITIES

Certain municipal debt securities that management has the positive intent and ability to hold to maturity are classified as “held-to-maturity” and recorded at amortized cost.  Securities not classified as held-to-maturity are classified as “available-for-sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income, a separate component of shareholders’ equity.  Amortization of premiums and accretion of discounts are recognized as adjustments to interest income using the level-yield method.  Realized gains or losses from the sale of securities are recorded on the trade date and are computed using the specific identification method.

Declines in the fair value of securities below their cost that are deemed to be other-than-temporarily impaired, and for which the Company does not intend to sell the securities and it is not more likely than not that the securities will be sold before the anticipated recovery of the impairment, are separated into losses related to credit factors and losses related to other factors.  The losses related to credit factors are recognized in earnings and losses related to other factors are recognized in other comprehensive income.  In estimating other than temporary impairment losses, management considers the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. The Company's consolidated statements of income as of December 31, 2017, 2016, and 2015, do not reflect any such impairment.

Federal Home Loan Bank ("FHLB") stock is an equity interest in the Federal Home Loan Bank of Cincinnati.  It can be sold only at its par value of $100 per share and only to the FHLB or to another member institution.  In addition, the equity ownership rights are more limited than would be the case for a public company because of the oversight role exercised by the Federal Housing Finance Agency in the process of budgeting and approving dividends.  Federal Reserve Bank stock is similarly restricted in marketability and value.  Both investments are carried at cost, which is their par value.

FHLB and Federal Reserve Bank stock are both subject to minimum ownership requirements by member banks.  The required investments in common stock are based on predetermined formulas.

LOANS

The Company’s loan portfolio includes most types of commercial and industrial loans, commercial loans secured by real estate, residential real estate loans, consumer loans, agricultural loans and other types of loans. Most of the properties collateralizing the loan portfolio are located within the Company’s market area.

Loans are stated at the principal amount outstanding, net of unearned income, deferred origination fees and costs, and the allowance for loan losses.  Interest income is accrued on the unpaid principal balance. The delinquency status of a loan is based on contractual terms and not on how recently payments have been received.  Generally, a loan is placed on non-accrual status when it is classified as impaired or there is an indication that the borrower’s cash flow may not be sufficient to make payments as they come due, unless the loan is well secured and in the process of collection.  Subsequent cash receipts on non-accrual loans are recorded as a reduction of principal and interest income is recorded once principal recovery is reasonably assured.  The current year's accrued interest on loans placed on non-accrual status is charged against earnings. Previous years' accrued interest is charged against the allowance for loan losses. Non-accrual loans are returned to accrual status when, in the opinion of management, the financial position of the borrower indicates there is no longer a reasonable doubt as to the timely collection of interest or principal.

Loan origination fees and certain direct loan origination costs are deferred and the net amount amortized as an adjustment of loan yields.  These amounts are being amortized over the lives of the related loans.

In the ordinary course of business, the Company enters into off-balance sheet financial instruments consisting of commitments to extend credit and standby letters of credit.  Such financial instruments are recorded in the financial statements when they are funded.  The credit risk associated with these commitments is evaluated in a manner similar to the allowance for loan losses.

Loans acquired from 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. Management estimates the cash flows expected to be collected at acquisition using a third-party risk model, which incorporates the estimate of key assumptions, such as default rates, severity, and prepayment speeds.

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 current 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.

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 collectibility of the principal is unlikely.  Consumer loans are charged off when they reach 120 days past due.  Subsequent recoveries, if any, are credited to the allowance.

The provision for loan losses is determined by management based upon its evaluation of the amount needed to maintain the allowance for loan losses at a level considered appropriate in relation to the estimated risk of losses inherent in the portfolio.  Current methodology used by management to estimate the allowance takes into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, historic categorical trends, current delinquency levels as related to historical levels, portfolio growth rates, changes in composition of the portfolio, the current economic environment, as well as current allowance adequacy in relation to the portfolio.  Management is cognizant that reliance on historical information coupled with the cyclical nature of the economy, including credit cycles, affects the allowance.  Management considers all of these factors prior to making any adjustments to the allowance due to the subjectivity and imprecision involved in allocation methodology.  This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of specific and general components.  The specific component relates to loans that are specifically reviewed for impairment.  For such loans, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan.  The general component covers loans not specifically reviewed for impairment and homogeneous loan pools, such as residential real estate and consumer loans.  The general component is measured for each loan category separately based on each category’s average of historical loss experience over a trailing sixty month period, adjusted for qualitative factors.  Such qualitative factors may include current economic conditions if different from the five-year historical loss period, trends in underperforming loans, trends in volume and terms of loan categories, concentrations of credit, and trends in loan quality.

A loan is considered impaired when management believes, based on current information and events, it is probable that the Bank will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the loan agreement.  An impaired loan is measured by the present value of expected future cash flows using the loan's effective interest rate.  An impaired collateral-dependent loan may be measured based on collateral value.  Smaller-balance homogeneous loans, including residential mortgage and consumer installment loans, that are not evaluated individually are collectively evaluated for impairment.

PREMISES AND EQUIPMENT

Premises and equipment are stated at cost less accumulated depreciation.  Depreciation is computed on both the straight-line and accelerated methods over the estimated useful lives of the assets, generally 15 to 40 years for premises and 3 to 10 years for equipment.  Leasehold improvements are amortized over the terms of the respective leases or the estimated useful lives of the improvements, whichever is shorter. Costs incurred for maintenance and repairs are expensed as incurred. Premises and equipment are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of a particular asset may not be recoverable.

OTHER REAL ESTATE OWNED

Other real estate owned includes properties acquired through foreclosure.  Such property is held for sale and is initially recorded at fair value, less costs to sell, establishing a new cost basis.  Fair value is primarily based on a property appraisal obtained at the time of transfer and any periodic updates that may be obtained thereafter.  The allowance for loan losses is charged for any write down of the loan’s carrying value to fair value at the date of transfer.  Any subsequent reductions in fair value and expenses incurred from holding other real estate owned are charged to other non-interest expense.  Costs, excluding interest, relating to the improvement of other real estate owned are capitalized.  Gains and losses from the sale of other real estate owned are included in other non-interest expense.

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill is the excess of the purchase price over the fair value of the net identifiable assets acquired in a business combination.  Goodwill is not amortized, but is instead subject to an annual review for impairment.

Mortgage servicing rights on originated mortgage loans that have been sold are initially recorded at their estimated fair values.  Mortgage servicing rights are amortized to loan servicing income in proportion to and over the period of estimated servicing income.  Such assets are periodically evaluated as to the recoverability of their carrying value.

The Company’s other intangible assets relate to core deposits acquired from business combinations.  These intangible assets are amortized on a straight-line basis over their estimated useful lives.  Management evaluates whether events or circumstances have occurred that indicate the remaining useful life or carrying value of the amortizing intangible should be revised.

BANK OWNED LIFE INSURANCE

The Company has purchased life insurance policies on certain officers of the Company.  The Company is the beneficiary of these policies and has recorded the estimated cash surrender value in other assets in the consolidated balance sheets.  Income on the policies, based on the increase in cash surrender value and any incremental death benefits, is included in other non-interest income in the consolidated statements of income.

AFFORDABLE HOUSING TAX CREDIT LIMITED PARTNERSHIP

LCNB has elected to account for its investment in an affordable housing tax credit limited partnership using the proportional amortization method described in FASB ASU 2014-01, "Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects (A Consensus of the FASB Emerging Issues Task Force)." Under the proportional amortization method, an investor amortizes the initial cost of the investment to income tax expense in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense. The investment in the limited partnership is included in other assets and the unfunded amount is included in accrued interest and other liabilities in LCNB's consolidated balance sheets.

FAIR VALUE MEASUREMENTS

Accounting guidance establishes a fair value hierarchy to prioritize the inputs to valuation techniques used to measure fair value.  A financial instrument’s level within the hierarchy is based on the lowest level of input that is significant to the fair value measurement.  The three broad input levels are:

• 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; and

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

Accounting guidance permits, but does not require, companies to measure many financial instruments and certain other items at fair value.  The decision to elect the fair value option is made individually for each instrument and is irrevocable once made.  Changes in fair value for the selected instruments are recorded in earnings. The Company did not select any financial instruments for the fair value election in 2017 or 2016.

ADVERTISING EXPENSE

Advertising costs are expensed as incurred and are recorded as a marketing expense, a component of non-interest expense.

PENSION PLANS

Eligible employees of the Company hired before 2009 participate in a multiple-employer qualified noncontributory defined benefit retirement plan.  This plan is accounted for as a multi-employer plan because assets contributed by an employer are not segregated in a separate account or restricted to provide benefits only to employees of that employer.

Citizens National had a qualified noncontributory, defined benefit pension plan, which has been assumed by the Company, that covers eligible employees hired before May 1, 2005. This is a single employer plan.

TREASURY STOCK

Common shares repurchased are recorded at cost. Cost of shares retired or reissued is determined using the weighted average method.

STOCK OPTIONS AND RESTRICTED STOCK AWARD PLANS

The cost of employee services received in exchange for stock option grants is the grant-date fair value of the award estimated using an option-pricing model.  The compensation cost for restricted stock awards is based on the market price of the Company's common stock at the date of grant multiplied by the number of shares granted that are expected to vest. The estimated cost is recognized on a straight-line basis over the period the employee is required to provide services in exchange for the award, usually the vesting period.  The Company uses a Black-Scholes pricing model and related assumptions for estimating the fair value of stock option grants and a five-year vesting period for stock options and restricted stock.

INCOME TAXES

Deferred income taxes are determined using the asset and liability method of accounting.  Under this method, the net deferred tax asset or liability is determined based on the tax effects of temporary differences between the book and tax basis of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws.

Management analyzes material tax positions taken in any income tax return for any tax jurisdiction and determines the likelihood of the positions being sustained in a tax examination.  A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur.  The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination.  For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

EARNINGS PER SHARE

Basic earnings per share allocated  to common shareholders is calculated using the two-class method and is computed by dividing net income allocated to common shareholders by the weighted average number of common shares outstanding during the period.  Diluted earnings per share is adjusted for the dilutive effects of stock based compensation and warrants and is calculated using the two-class method or the treasury stock method.  The diluted average number of common shares outstanding has been increased for the assumed exercise of stock based compensation and warrants with the proceeds used to purchase treasury shares at the average market price for the period.

RECENT ACCOUNTING PRONOUNCEMENTS

From time to time the FASB issues an Accounting Standards Update ("ASU") to communicate changes to Generally Accepted Accounting Principles ("GAAP"). 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.

Guidance in ASU No. 2014-09 has been clarified by the following ASUs:

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

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

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

• ASU No. 2016-20, "Revenue from Contracts with Customers (Topic 606): Technical Corrections and Improvements"

As extended by ASU No. 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date," ASU No. 2014-09 and the clarifying ASUs are 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 updates. Earlier adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. LCNB's revenue is comprised of net interest income, which is explicitly excluded from the scope of ASU No. 2014-09, and non-interest income. LCNB management has finalized its assessment of the update's affect on non-interest income and has determined that the amendments in ASU No. 2014-09 will not result in a material change from current accounting. Changes to related disclosures are still being analyzed.

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 did not 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 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 estimates that it will recognize discounted right of use assets and lease liabilities totaling approximately $5 million for the leases disclosed in Note 8 - Leases. This projection is based on various assumptions, including the level of interest rates and no significant increases in leasing activity, that may change between now and the effective date.

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. While LCNB's Loan Committee expects that the implementation of ASU No. 2016-13 will increase the balance of the allowance for loan losses, it is continuing to evaluate the potential impact on LCNB's results of operations and financial position. The Loan Committee is currently analyzing its data collection efforts, pool segmentation, and reporting mechanisms to prepare for adoption of this ASU. The financial statement impact of this new standard cannot be reasonably estimated at this time.

ASU No. 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment"

ASU No. 2017-04 was issued in January 2017 and applies to public and other entities that have goodwill reported in their financial statements. To simplify the subsequent measurement of goodwill, this ASU eliminates Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities, including unrecognized assets and liabilities, following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in this update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. A public business entity that is an SEC filer should adopt the amendments in this update on a prospective basis for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Adoption of ASU No. 2017-04 is not expected to have a material impact on LCNB's results of operations or financial position.

ASU No. 2017-07, "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost

and Net Periodic Postretirement Benefit Cost"

ASU No. 2017-07 was issued in March 2017 and applies to all employers that offer to their employees defined benefit pension plans, other postretirement benefit plans, or other types of benefits accounted for under Topic 715. The amendments in this update require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost, as defined, are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed. The amendments in ASU No. 2017-07 are effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The amendments in this update are to be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement. Adoption of ASU No. 2017-07 did not have a material impact on LCNB's results of operations or financial position.

ASU No. 2017-09, "Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting"

ASU No. 2017-09 was issued in May 2017 and applies to any entity that changes the terms or conditions of a share-based payment award. The amendments in this update provide that an entity would not apply modification accounting under the guidance in Topic 718 if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification. The amendments are to be applied prospectively and are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Adoption of ASU No. 2017-09 did not have a material impact on LCNB's results of operations or financial position.

ASU No. 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities"

ASU No. 2017-12 was issued in August 2017 and applies to any entity that elects to apply hedge accounting in accordance with current generally accepted accounting principles. The amendments in this update better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. To meet that objective, the amendments expand and refine hedge accounting for both nonfinancial and financial risk components. The amendments are effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early application is permitted. LCNB does not currently own any instruments within the scope of ASU No. 2017-12 and its adoption is not expected to have a material impact on its results of operations or financial position.

ASU No. 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income"

ASU No. 2018-02 was issued in February 2018 and addresses a narrow-scope financial reporting issue that arose as a consequence of the passage of H.R. 1, originally known as the “Tax Cuts and Jobs Act.” GAAP requires adjustment of deferred tax assets and liabilities for the effect of a change in tax laws or rates with the effect to be included in income from continuing operations in the reporting period that includes the enactment date. This guidance is applicable even in situations in which the related income tax effects of items in accumulated other comprehensive income were originally recognized in other comprehensive income rather than in income from continuing operations. As a consequence, the tax effects of items within accumulated other comprehensive income, referred to as stranded tax effects in the update, do not reflect the appropriate tax rate. The amendments in ASU No. 2018-02 allow a reclassification from accumulated other comprehensive income to retained earnings for the stranded tax effects resulting from the Tax Cuts and Jobs Act. Because the amendments only relate to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. ASU No. 2018-02 is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period. LCNB intends to early adopt ASU No. 2018-02 as of January 1, 2018 and reclassify its stranded tax effects totaling $486,000 (credit) into retained earnings.

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ACQUISITIONS

12 Months Ended

Dec. 31, 2017

Business Combinations [Abstract]

ACQUISITIONS

ACQUISITIONS (UNAUDITED)

On December 20, 2017, LCNB and Columbus First Bancorp, Inc. (“CFB”) entered into an Agreement and Plan of Merger (“Merger Agreement”) pursuant to which CFB will merge with and into LCNB in an all-stock transaction. Immediately following the merger of CFB into LCNB, Columbus First Bank, a wholly-owned subsidiary of CFB, will be merged into theBank. Columbus First Bank operates from one full-service office located in Worthington, Ohio. Subject to customary regulatory approvals, LCNB and CFB shareholder approvals, and other conditions set forth in the definitive merger agreement, the transaction is anticipated to close in the second quarter of 2018. At that time, Columbus First Bank's office will become a branch of the Bank.

Under the terms of the Merger Agreement, which has been unanimously approved by the Board of Directors of each company, the shareholders of CFB will be entitled to receive two LCNB common shares for each outstanding CFB common share. Any unexercised stock options of CFB will be canceled in exchange for a cash payment. Based on LCNB's closing share price of $18.50 as of February 28, 2018, the transaction is valued at $37.00 for each CFB share or approximately $58.8 million in aggregate. As of February 28, 2018, Columbus First has 1,589,516 shares outstanding, as well as 65,724 options with a weighted average strike price of $14.06 per share.

The acquisition will be accounted for in accordance with applicable accounting guidance. Accordingly, the assets and liabilities

of CFB will be recorded at their estimated fair values at the acquisition date. The excess of the estimated fair value of LCNB common shares issued over the net fair values of the assets acquired, including identifiable intangible assets and liabilities assumed, will be recorded as goodwill. The results of operations will be included in the consolidated income statement from the date of the acquisition. Goodwill will be subject to an annual test for impairment and the amount impaired, if any, will be charged to expense at the time of impairment.

The estimated fair values of the assets and liabilities have not yet been determined. The recorded amounts reflected on the historic financial records of CFB as of December 31, 2017 include total assets of approximately $330.4 million, consisting primarily of net loans of $279.7 million and interest-bearing deposits of $36.5 million. Recorded liabilities totaling approximately $297.7 million consisted primarily of deposits totaling $259.3 million.

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INVESTMENT SECURITIES

12 Months Ended

Dec. 31, 2017

Investments, Debt and Equity Securities [Abstract]

INVESTMENT SECURITIES

INVESTMENT SECURITIES

The amortized cost and fair value of available-for-sale investment securities at December 31 are summarized as follows (in thousands):

	Amortized Cost		Unrealized Gains	Unrealized Losses	Fair Value
2017
Investment Securities Available-for-Sale:
U.S. Treasury notes	$	2,283	—	24	2,259
U.S. Agency notes	84,837		57	1,633	83,261
U.S. Agency mortgage-backed securities	68,347		33	1,227	67,153
Municipal securities:
Non-taxable	102,849		343	1,018	102,174
Taxable	20,313		175	122	20,366
Mutual funds	2,586		2	46	2,542
Trust preferred securities	49		1	—	50
Equity securities	574		97	4	667
	$	281,838	708	4,074	278,472
Investment Securities Held-to-Maturity:
Municipal securities:
Non-taxable	$	28,871	101	227	28,745
Taxable	3,700		—	95	3,605
	$	32,571	101	322	32,350
2016
Investment Securities Available-for-Sale:
U.S. Treasury notes	$	28,180	41	76	28,145
U.S. Agency notes	87,098		150	1,848	85,400
U.S. Agency mortgage-backed securities	72,402		89	1,444	71,047
Municipal securities:
Non-taxable	114,064		574	1,623	113,015
Taxable	19,710		220	85	19,845
Mutual funds	2,527		—	45	2,482
Trust preferred securities	49		—	1	48
Equity securities	632		55	10	677
	$	324,662	1,129	5,132	320,659
Investment Securities Held-to-Maturity:
Municipal securities:
Non-taxable	$	31,015	56	352	30,719
Taxable	9,988		—	217	9,771
	$	41,003	56	569	40,490

Information concerning securities with gross unrealized losses at December 31, 2017 and 2016, aggregated by length of time that individual securities have been in a continuous loss position, is as follows (in thousands):

	Less Than Twelve Months			Twelve Months or More
	Fair Value		Unrealized Losses	Fair Value	Unrealized Losses
2017
Investment Securities Available-for-Sale:
U.S. Treasury notes	$	2,259	24	—	—
U.S. Agency notes	33,651		344	44,560	1,289
U.S. Agency mortgage-backed securities	24,433		142	41,080	1,085
Municipal securities:
Non-taxable	36,348		315	24,197	703
Taxable	11,068		114	1,032	8
Mutual funds	—		—	1,519	46
Trust preferred securities	—		—	—	—
Equity securities	119		2	17	2
	$	107,878	941	112,405	3,133
Investment Securities Held-to-Maturity:
Municipal securities:
Non-taxable	$	9,824	133	3,542	94
Taxable	—		—	3,205	95
	$	9,824	133	6,747	189
2016
Investment Securities Available-for-Sale:
U.S. Treasury notes	$	16,076	76	—	—
U.S. Agency notes	69,784		1,848	—	—
U.S. Agency mortgage-backed securities	64,564		1,310	3,518	134
Municipal securities:
Non-taxable	72,867		1,621	451	2
Taxable	9,721		82	450	3
Mutual funds	1,205		37	277	8
Trust preferred securities	49		1	—	—
Equity securities	201		10	—	—
	$	234,467	4,985	4,696	147
Investment Securities Held-to-Maturity:
Municipal securities:
Non-taxable	$	20,429	251	2,564	101
Taxable	8,030		217	—	—
	$	28,459	468	2,564	101

Management has determined that the unrealized losses at December 31, 2017 are primarily due to fluctuations in market interest rates and do not reflect credit quality deterioration of the securities.   Because the Company does not have the intent to sell the investments and it is more likely than not that the Company will not be required to sell the investments before recovery of their amortized cost, the Company does not consider these investments to be other-than-temporarily impaired.

Contractual maturities of investment securities at December 31, 2017 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	$	11,222	11,267	4,043	4,047
Due from one to five years	92,900		92,453	4,128	4,045
Due from five to ten years	102,520		100,836	8,415	8,286
Due after ten years	3,640		3,504	15,985	15,972
	210,282		208,060	32,571	32,350
U.S. Agency mortgage-backed securities	68,347		67,153	—	—
Mutual funds	2,586		2,542	—	—
Trust preferred securities	49		50	—	—
Equity securities	574		667	—	—
	$	281,838	278,472	32,571	32,350

Investment securities with a market value of $108,751,000 and $149,990,000 at December 31, 2017 and 2016, respectively, were pledged to secure public deposits and for other purposes required or permitted by law.

Certain information concerning the sale of investment securities available-for-sale for the years ended December 31 was as follows (in thousands):

	2017		2016	2015
Proceeds from sales	$	43,246	92,455	97,981
Gross realized gains	247		1,103	627
Gross realized losses	14		21	132

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LOANS

12 Months Ended

Dec. 31, 2017

Receivables [Abstract]

LOANS

LOANS

Major classifications of loans at December 31 were as follows (in thousands):

	2017		2016
Commercial and industrial	$	36,057	41,878
Commercial, secured by real estate	527,947		477,275
Residential real estate	251,582		265,788
Consumer	17,450		19,173
Agricultural	15,194		14,802
Other loans, including deposit overdrafts	539		633
	848,769		819,549
Deferred origination costs, net	291		254
	849,060		819,803
Less allowance for loan losses	3,403		3,575
Loans-net	$	845,657	816,228

Non-accrual, past-due, and accruing restructured loans at December 31 were as follows (dollars in thousands):

	2017			2016
Non-accrual loans:
Commercial and industrial	$	—		—
Commercial, secured by real estate	2,183			4,312
Agricultural	178			334
Residential real estate	604			1,079
Total non-accrual loans	2,965			5,725
Past-due 90 days or more and still accruing	—			23
Total non-accrual and past-due 90 days or more and still accruing	2,965			5,748
Accruing restructured loans	10,469			11,731
Total	$	13,434		17,479
Percentage of total non-accrual and past-due 90 days or more and still accruing to total loans	0.35		%	0.70	%
Percentage of total non-accrual, past-due 90 days or more and still accruing, and accruing restructured loans to total loans	1.58		%	2.13	%

Interest income that would have been recorded during 2017 and 2016 if loans on non-accrual status at December 31, 2017 and 2016 had been current and in accordance with their original terms was approximately $202,000 and $220,000, respectively.

The Company is not committed to lend additional funds to debtors whose loans have been modified to provide a reduction or deferral of principal or interest because of deterioration in the financial position of the borrower.

The allowance for loan losses and recorded investment in loans for the years ended December 31 were as follows (in thousands):

	Commercial & Industrial			Commercial, Secured by Real Estate		Residential Real Estate		Consumer		Agricultural		Other		Total
December 31, 2017
Allowance for loan losses:
Balance, beginning of year	$	350		2,179		885		96		60		5		3,575
Provision charged to expenses	(71		)	348		(83	)	(44	)	(7	)	72		215
Losses charged off	—			(462	)	(225	)	(90	)	—		(138	)	(915	)
Recoveries	99			113		140		114		—		62		528
Balance, end of year	$	378		2,178		717		76		53		1		3,403
Individually evaluated for impairment	$	8		146		29		8		—		—		191
Collectively evaluated for impairment	370			2,032		688		68		53		1		3,212
Acquired credit impaired loans	—			—		—		—		—		—		—
Balance, end of year	$	378		2,178		717		76		53		1		3,403
Loans:
Individually evaluated for impairment	$	303		11,289		1,351		47		177		—		13,167
Collectively evaluated for impairment	34,792			512,259		248,674		17,516		15,033		137		828,411
Acquired credit impaired loans	1,008			4,048		2,024		—		—		402		7,482
Balance, end of year	$	36,103		527,596		252,049		17,563		15,210		539		849,060
December 31, 2016
Allowance for loan losses:
Balance, beginning of year	$	244		1,908		854		54		66		3		3,129
Provision charged to expenses	314			358		106		74		(6	)	67		913
Losses charged off	(234		)	(185	)	(127	)	(85	)	—		(119	)	(750	)
Recoveries	26			98		52		53		—		54		283
Balance, end of year	$	350		2,179		885		96		60		5		3,575
Individually evaluated for impairment	$	9		55		100		13		—		—		177
Collectively evaluated for impairment	341			1,832		785		83		60		5		3,106
Acquired credit impaired loans	—			292		—		—		—		—		292
Balance, end of year	$	350		2,179		885		96		60		5		3,575
Loans:
Individually evaluated for impairment	$	337		12,580		1,518		52		334		—		14,821
Collectively evaluated for impairment	41,466			458,059		262,266		19,192		14,475		178		795,636
Acquired credit impaired loans	98			6,305		2,471		17		—		455		9,346
Balance, end of year	$	41,901		476,944		266,255		19,261		14,809		633		819,803

	Commercial & Industrial			Commercial, Secured by Real Estate		Residential Real Estate		Consumer		Agricultural		Other		Total
December 31, 2015
Allowance for loan losses:
Balance, beginning of year	$	129		1,990		926		63		11		2		3,121
Provision charged to expenses	208			955		125		(17	)	55		40		1,366
Losses charged off	(100		)	(1,133	)	(304	)	(52	)	(67	)	(74	)	(1,730	)
Recoveries	7			96		107		60		67		35		372
Balance, end of year	$	244		1,908		854		54		66		3		3,129
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 year	$	244		1,908		854		54		66		3		3,129

The risk characteristics of LCNB's material loan portfolio segments were 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% to 80% maximum loan to appraised value ratio, depending upon borrower occupancy.

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 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 collectibility 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.

The Company 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 the Company 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.

An analysis of the Company’s loan portfolio by credit quality indicators at December 31 is as follows (in thousands):

	Pass		OAEM	Substandard	Doubtful	Total
December 31, 2017
Commercial & industrial	$	35,683	176	244	—	36,103
Commercial, secured by real estate	506,833		2,180	18,583	—	527,596
Residential real estate	250,039		—	2,010	—	252,049
Consumer	17,522		—	41	—	17,563
Agricultural	14,233		—	977	—	15,210
Other	539		—	—	—	539
Total	$	824,849	2,356	21,855	—	849,060
December 31, 2016
Commercial & industrial	$	41,178	304	419	—	41,901
Commercial, secured by real estate	443,781		5,479	27,684	—	476,944
Residential real estate	261,839		442	3,974	—	266,255
Consumer	19,182		—	79	—	19,261
Agricultural	13,311		—	1,498	—	14,809
Other	633		—	—	—	633
Total	$	779,924	6,225	33,654	—	819,803

The Company evaluates the loan risk grading system definitions and allowance for loan loss methodology on an ongoing basis. No significant changes were made to either during the past year.

A loan portfolio aging analysis at December 31 is as follows (in thousands):

	30-59 Days Past Due		60-89 Days Past Due	Greater Than 90 Days	Total Past Due	Current	Total Loans Receivable	Total Loans Greater Than 90 Days and Accruing
December 31, 2017
Commercial & industrial	$	—	—	—	—	36,103	36,103	—
Commercial, secured by real estate	124		—	598	722	526,874	527,596	—
Residential real estate	362		135	496	993	251,056	252,049	—
Consumer	29		2	—	31	17,532	17,563	—
Agricultural	—		—	177	177	15,033	15,210	—
Other	82		—	—	82	457	539	—
Total	$	597	137	1,271	2,005	847,055	849,060	—
December 31, 2016
Commercial & industrial	$	19	—	—	19	41,882	41,901	—
Commercial, secured by real estate	99		69	127	295	476,649	476,944	—
Residential real estate	686		80	727	1,493	264,762	266,255	20
Consumer	59		16	3	78	19,183	19,261	3
Agricultural	125		—	—	125	14,684	14,809	—
Other	115		—	—	115	518	633	—
Total	$	1,103	165	857	2,125	817,678	819,803	23

Impaired loans for the years ended December 31 were as follows (in thousands):

	Recorded Investment		Unpaid Principal Balance	Related Allowance	Average Recorded Investment	Interest Income Recognized
December 31, 2017
With no related allowance recorded:
Commercial & industrial	$	1,015	1,100	—	685	88
Commercial, secured by real estate	12,677		13,608	—	14,113	1,068
Residential real estate	2,822		3,516	—	3,216	546
Consumer	6		6	—	20	2
Agricultural	177		177	—	269	12
Other	402		554	—	441	55
Total	$	17,099	18,961	—	18,744	1,771
With an allowance recorded:
Commercial & industrial	$	296	301	8	311	18
Commercial, secured by real estate	2,660		2,660	146	2,739	45
Residential real estate	553		572	29	596	19
Consumer	41		41	8	43	3
Agricultural	—		—	—	—	—
Other	—		—	—	—	—
Total	$	3,550	3,574	191	3,689	85
Total:
Commercial & industrial	$	1,311	1,401	8	996	106
Commercial, secured by real estate	15,337		16,268	146	16,852	1,113
Residential real estate	3,375		4,088	29	3,812	565
Consumer	47		47	8	63	5
Agricultural	177		177	—	269	12
Other	402		554	—	441	55
Total	$	20,649	22,535	191	22,433	1,856

	Recorded Investment		Unpaid Principal Balance	Related Allowance	Average Recorded Investment	Interest Income Recognized
December 31, 2016
With no related allowance recorded:
Commercial & industrial	$	109	263	—	998	151
Commercial, secured by real estate	14,195		15,522	—	15,274	1,140
Residential real estate	3,238		4,286	—	3,736	369
Consumer	26		27	—	37	29
Agricultural	334		334	—	392	136
Other	455		629	—	481	77
Total	$	18,357	21,061	—	20,918	1,902
With an allowance recorded:
Commercial & industrial	$	326	326	9	341	19
Commercial, secured by real estate	4,690		4,946	347	4,194	257
Residential real estate	751		751	100	651	36
Consumer	43		43	13	43	3
Agricultural	—		—	—	—	—
Other	—		—	—	—	—
Total	$	5,810	6,066	469	5,229	315
Total:
Commercial & industrial	$	435	589	9	1,339	170
Commercial, secured by real estate	18,885		20,468	347	19,468	1,397
Residential real estate	3,989		5,037	100	4,387	405
Consumer	69		70	13	80	32
Agricultural	334		334	—	392	136
Other	455		629	—	481	77
Total	$	24,167	27,127	469	26,147	2,217

	Average Recorded Investment		Interest Income Recognized
December 31, 2015
With no related allowance recorded:
Commercial & industrial	$	1,467	206
Commercial, secured by real estate	18,575		2,229
Residential real estate	4,092		453
Consumer	106		25
Agricultural	81		487
Other	510		82
Total	$	24,831	3,482
With an allowance recorded:
Commercial & industrial	$	370	21
Commercial, secured by real estate	4,007		114
Residential real estate	864		37
Consumer	—		—
Agricultural	—		—
Other	—		—
Total	$	5,241	172
Total:
Commercial & industrial	$	1,837	227
Commercial, secured by real estate	22,582		2,343
Residential real estate	4,956		490
Consumer	106		25
Agricultural	81		487
Other	510		82
Total	$	30,072	3,654

Of the interest income recognized on impaired loans during 2017, 2016, and 2015, approximately $28,000, $51,000, and $96,000, respectively, were recognized on a cash basis. The Company continued to accrue interest on certain loans classified as impaired during 2017, 2016, and 2015 because they were restructured or considered well secured and in the process of collection.

Loan modifications that were classified as troubled debt restructurings during the years ended December 31 were as follows (dollars in thousands):

	2017					2016					2015
	Number of Loans	Pre-Modification Recorded Balance		Post-Modification Recorded Balance		Number of Loans	Pre-Modification Recorded Balance		Post-Modification Recorded Balance		Number of Loans	Pre-Modification Recorded Balance		Post-Modification Recorded Balance
Commercial and industrial	—	$	—	$	—	—	$	—	$	—	—	$	—	$	—
Commercial, secured by real estate	—	—		—		4	2,142		2,215		1	75		74
Residential real estate	1	18		9		6	139		139		7	217		221
Consumer	1	14		14		3	39		39		2	9		9
	2	$	32	$	23	13	$	2,320	$	2,393	10	$	301	$	304

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. Post-modification balances of newly restructured troubled debt by type of modification for the years ended December 31 were as follows (in thousands):

	Term Modification		Rate Modification	Interest Only	Principal Forgiveness	Combination	Total Modifications
December 31, 2017
Commercial & industrial	$	—	—	—	—	—	—
Commercial, secured by real estate	—		—	—	—	—	—
Residential real estate	—		—	—	9	—	9
Consumer	14		—	—	—	—	14
Total	$	14	—	—	9	—	23
December 31, 2016
Commercial & industrial	$	—	—	—	—	—	—
Commercial, secured by real estate	1,539		—	304	—	372	2,215
Residential real estate	38		47	—	—	54	139
Consumer	—		28	—	—	11	39
Total	$	1,577	75	304	—	437	2,393
December 31, 2015
Commercial & industrial	$	—	—	—	—	—	—
Commercial, secured by real estate	74		—	—	—	—	74
Residential real estate	221		—	—	—	—	221
Consumer	9		—	—	—	—	9
Total	$	304	—	—	—	—	304

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 years ended December 31, 2016, and 2015. Two commercial, secured by real estate loans to the same borrower totaling $1,236,000 that were modified during the fourth quarter 2016 subsequently defaulted in February 2017.

All troubled debt restructurings are considered impaired loans. The allowance for loan loss on such restructured loans is based on the present value of future expected cash flows.

Approximately $21,000 of impaired loans without a valuation allowance at December 31, 2017 consisted of loans that were modified during 2017 and were determined to be troubled debt restructurings. None of the impaired loans restructured during 2017 had a valuation allowance at December 31, 2017.  Approximately $881,000 of impaired loans without a valuation allowance and $1,168,000 of impaired loans with a valuation allowance at December 31, 2016 consisted of loans that were modified during 2016 and were determined to be troubled debt restructurings.

Mortgage loans sold to and serviced for the Federal Home Loan Mortgage Corporation and other investors are not included in the accompanying consolidated balance sheets.  The unpaid principal balances of those loans at December 31, 2017, 2016 and 2015 were approximately $92,818,000, $100,982,000, and $111,837,000, respectively.

Mortgage servicing right assets are included in core deposit and other intangibles in the consolidated balance sheets.  Amortization of mortgage servicing rights is an adjustment to loan servicing income, which is included with other operating income in the consolidated statements of income.  Activity in the mortgage servicing rights portfolio during the years ended December 31 was as follows (in thousands):

	2017			2016		2015
Balance, beginning of year	$	428		488		591
Amount capitalized to mortgage servicing rights	91			109		78
Amortization of mortgage servicing rights	(123		)	(169	)	(181	)
Balance, end of year	$	396		428		488

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ACQUIRED CREDIT IMPAIRED LOANS

12 Months Ended

Dec. 31, 2017

Acquired Credit Impaired Loans [Abstract]

ACQUIRED CREDIT IMPAIRED LOANS

ACQUIRED CREDIT IMPAIRED LOANS

The following table provides, as of December 31, the major classifications of loans acquired that are accounted for in accordance with FASB ASC 310-30 (in thousands):

	2017		2016
Commercial & industrial	$	1,008	98
Commercial, secured by real estate	4,048		6,305
Residential real estate	2,024		2,471
Consumer	—		17
Agricultural	—		—
Other loans, including deposit overdrafts	402		455
	7,482		9,346
Less allowance for loan losses	—		292
Loans, net	$	7,482	9,054

The following table provides the outstanding balance and related carrying amount for acquired impaired loans at December 31 (in thousands):

	2017		2016
Outstanding balance	$	9,065	12,289
Carrying amount	7,482		9,346

Activity during 2017 and 2016 for the accretable discount related to acquired impaired loans is as follows (in thousands):

	2017			2016
Accretable discount, beginning of year	$	1,080		1,503
Accretable discount acquired during period	—			—
Reclass from nonaccretable discount to accretable discount	564			423
Less disposals	(170		)	(5	)
Less accretion	(805		)	(841	)
Accretable discount, end of year	$	669		1,080

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OTHER REAL ESTATE OWNED

12 Months Ended

Dec. 31, 2017

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 balance sheets.  Changes in other real estate owned were as follows (in thousands):

	2017			2016
Balance, beginning of year	$	—		846
Additions	974			214
Reductions due to sales	(974		)	(484	)
Reductions due to valuation write downs	—			(576	)
Balance, end of year	$	—		—

The total recorded investment in residential consumer mortgage loans secured by residential real estate that was in the process of foreclosure at December 31, 2017 was $185,000.

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PREMISES AND EQUIPMENT

12 Months Ended

Dec. 31, 2017

Property, Plant and Equipment [Abstract]

PREMISES AND EQUIPMENT

PREMISES AND EQUIPMENT

Premises and equipment at December 31 are summarized as follows (in thousands):

	2017		2016
Land	$	8,190	8,277
Buildings	31,965		21,400
Equipment	15,648		13,065
Construction in progress	120		7,362
Total	55,923		50,104
Less accumulated depreciation	20,996		19,860
Premises and equipment, net	$	34,927	30,244

Depreciation charged to expense was, $1,549,000 in 2017, $1,210,000 in 2016, and $1,427,000 in 2015.

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LEASES

12 Months Ended

Dec. 31, 2017

Leases [Abstract]

LEASES

LEASES

Some of the Bank's branches, telephone equipment, and other equipment are leased under agreements expiring at various dates through 2050.  These leases are accounted for as operating leases.  The leases generally provide for renewal options and most require periodic changes in rental amounts based on various indices.  Minimum annual rentals for non-cancelable leases at December 31, 2017 that have terms in excess of one year were as follows (in thousands):

2018	$	321
2019	243
2020	207
2021	161
2022	164
Thereafter	3,363
Total	$	4,459

Rental expense for all leased branches and equipment was approximately $569,000 in 2017, $545,000 in 2016, and $542,000 in 2015.

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GOODWILL AND OTHER INTANGIBLE ASSETS

12 Months Ended

Dec. 31, 2017

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL AND OTHER INTANGIBLE ASSETS

GOODWILL AND OTHER INTANGIBLE ASSETS

There were no changes in goodwill during 2017 and 2016.

Other intangible assets in the consolidated balance sheets at December 31, 2017 and 2016 were as follows (in thousands):

	2017				2016
	Gross Intangible Assets		Accumulated Amortization	Net Intangible Assets	Gross Intangible Assets	Accumulated Amortization	Net Intangible Assets
Core deposit intangibles	$	6,458	3,055	3,403	6,458	2,304	4,154
Mortgage servicing rights	1,279		883	396	1,188	760	428
Total	$	7,737	3,938	3,799	7,646	3,064	4,582

The estimated aggregate future amortization expense for each of the next five years for intangible assets remaining as of December 31, 2017 is as follows (in thousands):

2018	$	848
2019	829
2020	815
2021	800
2022	224

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AFFORDABLE HOUSING TAX CREDIT LIMITED PARTNERSHIP

12 Months Ended

Dec. 31, 2017

Equity Method Investments and Joint Ventures [Abstract]

AFFORDABLE HOUSING TAX CREDIT LIMITED PARTNERSHIP

AFFORDABLE HOUSING TAX CREDIT LIMITED PARTNERSHIPS

LCNB is a limited partner in limited partnerships that sponsor affordable housing projects utilizing the Low Income Housing Tax Credit (LIHTC) pursuant to Section 42 of the Internal Revenue Code. The purpose of the investments 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 partnerships 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 December 31 (in thousands):

	2017		2016
Affordable housing tax credit investment	$	3,000	2,000
Less amortization	231		93
Net affordable housing tax credit investment	$	2,769	1,907
Unfunded commitment	$	2,257	1,617

The net affordable housing tax credit investment is included in other assets and the unfunded commitment is included in accrued interest and other liabilities in the Consolidated Balance Sheets.

LCNB expects to fund the unfunded commitment over ten years.

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

	Year ended December 31,
	2017		2016	2015
Tax credits and other tax benefits recognized	$	180	103	14
Tax credit amortization expense included in provision for income taxes	138		81	12

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CERTIFICATES OF DEPOSIT

12 Months Ended

Dec. 31, 2017

Deposits [Abstract]

CERTIFICATES OF DEPOSIT

TIME DEPOSITS

Contractual maturities of time deposits at December 31, 2017 were as follows (in thousands):

2018	$	64,454
2019	34,893
2020	49,289
2021	32,370
2022	8,667
Thereafter	2,226
	$	191,899

The aggregate amount of time deposits in denominations of $250,000 or more at December 31, 2017 and 2016 was $17,759,000 and $22,410,000, respectively.

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BORROWINGS

12 Months Ended

Dec. 31, 2017

Debt Disclosure [Abstract]

BORROWINGS

BORROWINGS

Funds borrowed from the FHLB at December 31 by year of maturity were as follows (dollars in thousands):

	Outstanding Balance		Average Rate
December 31, 2017
2018	$	248	2.82	%
2019	55		2.82	%
Total	$	303	2.82	%
December 31, 2016
2017	$	295	2.82	%
2018	248		2.82	%
2019	55		2.82	%
Total	$	598	2.82	%

All advances from the FHLB are secured by a blanket pledge of the Company’s 1-4 family first lien mortgage loans in the amount of approximately $217 million and $229 million at December 31, 2017 and 2016, respectively.  Additionally, the Company was required to hold minimum levels of FHLB stock, based on the outstanding borrowings.  Total remaining borrowing capacity, including short-term borrowing arrangements, at December 31, 2017 was approximately $56.3 million.  One of the factors limiting remaining borrowing capacity is ownership of FHLB stock.  The Company could increase its remaining borrowing capacity by purchasing additional FHLB stock.

Short-term borrowings at December 31 were as follows (dollars in thousands):

	2017				2016
	Amount		Rate		Amount		Rate
Line of credit	$	—	—	%	$	—	—	%
FHLB short-term advance	47,000		1.43	%	25,000		0.63	%
Repurchase agreements	—		—	%	17,040		0.10	%
	$	47,000	1.43	%	$	42,040	0.42	%

At December 31, 2017, the Company had short-term borrowing arrangements with three financial institutions and the Federal Home Loan Bank of Cincinnati ("FHLB").  The first arrangement is a short-term line of credit for a maximum amount of $10 million at the interest rate in effect at the time of the borrowing.  The second arrangement provides that the Company can borrow up to $10 million in federal funds at the interest rate in effect at the time of the borrowing.  The third arrangement is a short-term line of credit for a maximum amount of $20 million at an interest rate equal to the lending institution’s federal funds rate plus a spread of 50 basis points.

The Company has two short-term borrowing arrangements with the FHLB - a Cash Management Advance arrangement and a Repo Advance arrangement. Under the terms of the Cash Management Advance program, the Company can borrow up to $65.3 million in short-term advances, subject to total remaining borrowing capacity limitations.  The Company has the option of selecting a variable rate of interest for up to 90 days or a fixed rate of interest for up to 30 days.   This agreement expires on August 24, 2018. Under the Repo Advance program, the Company can borrow up to $65.3 million in advances, subject to total remaining borrowing capacity limitations, with terms ranging from one day to one year. Prepayment is not permitted. This agreement expires on December 12, 2018. The interest rate for both the Cash Management Advance and Repo Advance programs is the published rate in effect at the time of the advance.  

The repurchase agreements product was discontinued in August 2017. Repurchase agreements were an option customers could use in managing their cash positions and matured the next business day after issuance.  Repurchase agreements at December 31, 2016 were fully secured by U.S. Agency notes and such collateral securities were held by the Federal Reserve Bank.  The maximum amount of outstanding agreements at any month-end during 2017 and 2016 totaled $16,320,000 and $18,715,000, respectively.  The average balance through August 2017 was $10,515,000 and the average balance for 2016 was $13,891,000.

As of December 31, 2016, approximately $3.1 million of the now discontinued repurchase agreements outstanding were held by a company owned by a member of the Company’s Board of Directors.

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INCOME TAXES

12 Months Ended

Dec. 31, 2017

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

The provision for federal income taxes consists of (in thousands):

	2017			2016	2015
Income taxes currently payable	$	3,018		3,515	4,280
Revaluation of net deferred tax liability	(224		)	—	—
Deferred income tax provision (benefit)	1,478			928	(58	)
Provision for income taxes	$	4,272		4,443	4,222

A reconciliation between the statutory income tax and the Company's effective tax rate follows:

	2017		2016		2015
Statutory tax rate	34.0	%	34.0	%	34.0	%
Increase (decrease) resulting from -
Tax exempt interest	(6.0	)%	(6.3	)%	(6.0	)%
Tax exempt income on bank owned life insurance	(1.7	)%	(1.5	)%	(1.4	)%
Revaluation of net deferred tax liability	(1.3	)%	—	%	—	%
Captive insurance premium income	(0.9	)%	—	%	—	%
Other – net	0.7	%	0.1	%	0.3	%
Effective tax rate	24.8	%	26.3	%	26.9	%

Deferred tax assets and liabilities, included in the Consolidated Balance Sheets with accrued interest and other liabilities in 2017 and other assets in 2016, consist of the following at December 31 (in thousands):

	2017			2016
Deferred tax assets:
Allowance for loan losses	$	715		1,223
Net unrealized losses on investment securities available-for-sale	707			1,369
Fair value adjustment on loans acquired from merger with First Capital	238			592
Pension and deferred compensation	760			1,157
Other	471			546
	2,891			4,887
Deferred tax liabilities:
Depreciation of premises and equipment	(1,672		)	(1,332	)
Amortization of intangibles	(1,030		)	(1,567	)
Prepaid expenses	(210		)	—
Deferred loan fees	(1		)	(2	)
FHLB stock dividends	(216		)	(351	)
Fair value adjustment on securities acquired from merger with First Capital	(9		)	(19	)
	(3,138		)	(3,271	)
Net deferred tax (liabilities) assets	$	(247	)	1,616

As of December 31, 2017 and 2016 there were no unrecognized tax benefits and the Company does not anticipate the total amount of unrecognized tax benefits will significantly change within the next twelve months.  There were no amounts recognized for interest and penalties in the consolidated statements of income for the three-year period ended December 31, 2017.

The Company is no longer subject to examination by federal tax authorities for years before 2014.

The Tax Cuts and Jobs Act ("Tax Act") was enacted on December 22, 2017. Among other changes, the Tax Act reduces the US Federal corporate tax rate from 35% to 21%. At December 31, 2017, the Company has substantially completed its accounting for the tax effects of enactment of the Tax Act. For deferred tax assets and liabilities, amounts were remeasured based on the rates expected to reverse in the future, which is now 21%. The Company continues to analyze certain aspects of the Tax Act and further refinements are possible, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts, although LCNB management does not expect these adjustments to materially impact its financial statements.

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COMMITMENTS AND CONTINGENT LIABILITIES

12 Months Ended

Dec. 31, 2017

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.  The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument 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 December 31 were as follows (in thousands):

	2017		2016
Commitments to extend credit:
Commercial loans	$	18,964	10,350
Other loans:
Fixed rate	2,747		4,425
Adjustable rate	1,150		1,044
Unused lines of credit:
Fixed rate	20,984		9,731
Adjustable rate	90,147		80,222
Unused overdraft protection amounts on demand and NOW accounts	16,441		17,123
Standby letters of credit	294		657
	$	150,727	123,552

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 or agreement.  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.

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

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 December 31, 2017 totaled approximately $40,000.

The Company and the Bank 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 LCNB's consolidated financial position or results of operations.

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REGULATORY MATTERS

12 Months Ended

Dec. 31, 2017

Banking and Thrift [Abstract]

REGULATORY MATTERS

REGULATORY MATTERS

The Federal Reserve Act requires depository institutions to maintain cash reserves with the Federal Reserve Bank.  In 2017 and 2016, the Bank maintained average reserve balances of $7,924,000 and $10,903,000, respectively.  The reserve balances at December 31, 2017 and 2016 were $1,422,000 and $4,313,000, respectively.

The principal source of income and funds for LCNB Corp. is dividends paid by the Bank.  The payment of dividends is subject to restriction by regulatory authorities.  For 2018, the restrictions generally limit dividends to the aggregate of net income for the year 2018 plus the net earnings retained for 2017 and 2016.  In addition, dividend payments may not reduce capital levels below minimum regulatory guidelines. At December 31, 2017, approximately $18,865,000 of the Bank’s earnings retained was available for dividends in 2018 under this guideline.  Dividends in excess of these limitations would require the prior approval of the Comptroller of the Currency.

The Company (consolidated) and the Bank must meet certain minimum capital requirements set by federal banking agencies.  Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a material effect on the Company's and Bank's financial statements.  The Company’s and Bank’s capital amounts and classification are also subject to qualitative judgments by regulators about components, risk weightings, and other factors.

A new rule requiring a Capital Conservation Buffer began phase-in on January 1, 2016 and will be fully implemented at the beginning of 2019. 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.

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

	Minimum Requirement		Minimum Requirement with Capital Conservation Buffer for 2017		To Be Considered Well-Capitalized
Ratio of Common Equity Tier 1 Capital to risk-weighted assets	4.5	%	5.75	%	6.5	%
Ratio of tier 1 capital to risk-weighted assets	6.0	%	7.25	%	8.0	%
Ratio of total capital (tier 1 capital plus tier 2 capital) to risk-weighted assets	8.0	%	9.25	%	10.0	%
Leverage ratio (tier 1 capital to adjusted quarterly average total assets)	4.0	%	N/A		5.0	%

As of the most recent notification from their regulators, the Company and Bank were categorized as "well-capitalized" under the regulatory framework for prompt corrective action.  Management believes that no conditions or events have occurred since the last notification that would change the Bank's category.

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

	2017					2016
	Consolidated Company			Bank		Consolidated Company		Bank
Regulatory Capital:
Shareholders' equity	$	150,271		148,163		142,944		141,325
Goodwill and other intangible assets	(32,906		)	(32,906	)	(32,676	)	(32,676	)
Accumulated other comprehensive loss	2,828			2,859		2,617		2,605
Tier 1 risk-based capital	120,193			118,116		112,885		111,254
Eligible allowance for loan losses	3,403			3,403		3,575		3,575
Total risk-based capital	$	123,596		121,519		116,460		114,829
Capital Ratios:
Common Equity Tier 1 Capital to risk-weighted assets	13.29		%	13.07	%	13.00	%	12.82	%
Tier 1 capital to risk-weighted assets	13.29		%	13.07	%	13.00	%	12.82	%
Total capital (tier 1 capital plus tier 2 capital) to risk-weighted assets	13.66		%	13.45	%	13.41	%	13.24	%
Leverage ratio (tier 1 capital to adjusted quarterly average total assets)	9.51		%	9.36	%	8.81	%	8.69	%

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

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ACCUMULATED OTHER COMPREHENSIVE INCOME

12 Months Ended

Dec. 31, 2017

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

ACCUMULATED OTHER COMPREHENSIVE INCOME

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Changes in accumulated other comprehensive income (loss) for 2017 and 2016 were as follows (in thousands):

	2017							2016
	Unrealized Gains and Losses on Available-for-Sale Securities			Changes in Pension Plan Assets and Benefit Obligations		Total		Unrealized Gains and Losses on Available-for-Sale Securities		Changes in Pension Plan Assets and Benefit Obligations		Total
Balance at beginning of year	$	(2,633	)	16		(2,617	)	469		(233	)	236
Before reclassifications	585			(158	)	427		(2,390	)	249		(2,141	)
Reclassifications	(152		)	—		(152	)	(712	)	—		(712	)
Balance at end of year	$	(2,200	)	(142	)	(2,342	)	(2,633	)	16		(2,617	)

Reclassifications out of accumulated other comprehensive income (loss) during 2017 and 2016 and the affected line items in the consolidated statements of income were as follows (in thousands):

	2017		2016	Affected Line Item in the Consolidated Statements of Income
Realized gain on sales of securities	$	233	1,082	Net gain on sale of securities
Less provision for income taxes	81		370	Provision for income taxes
Reclassification adjustment, net of taxes	$	152	712

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RETIREMENT PLANS

12 Months Ended

Dec. 31, 2017

Retirement Benefits [Abstract]

RETIREMENT PLANS

RETIREMENT PLANS

Prior to January 1, 2009, the Company had a single-employer qualified noncontributory defined benefit retirement plan that covered substantially all regular full-time employees.  Effective January 1, 2009, the Company redesigned the plan and merged it into a multiple-employer plan, which is accounted for as a multi-employer plan because assets contributed by an employer are not segregated in a separate account or restricted to provide benefits only to employees of that employer.  Employees hired on or after January 1, 2009 are not eligible to participate in this plan.

Effective February 1, 2009, the Company amended the plan to reduce benefits for those whose age plus vesting service equaled less than 65 at that date.  Also effective February 1, 2009, an enhanced 401(k) plan was made available to those hired on or after January 1, 2009 and to those who received benefit reductions from the amendments to the noncontributory defined benefit retirement plan.  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 company contribution of 3% of each individual employee’s annual compensation.  Employees who received a benefit reduction under the retirement plan amendments receive an automatic contribution of 5% or 7% of annual compensation, depending on the sum of an employee’s age and vesting service, into the 401(k) plan, regardless of the contributions made by the employees.  This contribution is made annually and these employees will not receive any employer matches to their 401(k) contributions.

Certain information pertaining to the qualified noncontributory defined benefit retirement plan is as follows:

Legal name	Pentegra Defined Benefit Plan for Financial Institutions
Plan's employer identification number	13-5645888
Plan number	333

The plan is at least 80% funded as of July 1, 2017 and 2016.  A funding improvement or rehabilitation plan has not been implemented, nor has a surcharge been paid to the plan. The Company’s contributions to the qualified noncontributory defined benefit retirement plan do not represent more than 5% of total contributions to the plan.

Funding and administrative costs of the qualified noncontributory defined benefit retirement plan and 401(k) plan charged to salaries and employee benefits in the consolidated statements of income for the years ended December 31 were as follows (in thousands):

	2017		2016	2015
Qualified noncontributory defined benefit retirement plan	$	1,054	969	984
401(k) plan	374		359	346

The Company expects a minimum contribution of $224,000 to the qualified noncontributory defined benefit retirement plan in 2018.  The Company expects to contribute $426,000 to the 401(k) plan in 2018.

Citizens National had a qualified noncontributory defined benefit pension plan which covered employees hired before May 1, 2005.  The Company assumed this plan at the time of the merger. At December 31, 2017, the amount of the liability for this plan was $128,000, representing the funded status of the plan.

The Bank has a benefit plan which permits eligible officers to defer a portion of their compensation.  The deferred compensation balance, which accrues interest at 8% annually, is distributable in cash after retirement or termination of employment.  The amount of such deferred compensation liability at December 31, 2017 and 2016 was $3,406,000 and $3,407,000, respectively.

The Bank also has supplemental income plans which provide certain employees an amount based on a percentage of average compensation, payable in accordance with individually defined schedules upon retirement. The projected benefit obligation included in other liabilities for the supplemental income plans at December 31, 2017 and 2016 is $1,249,000 and $1,284,000, respectively. The average discount rate used to determine the present value of the obligations was approximately 5.2% in 2017 and 5.2% in 2016. The service cost associated with the plans was $0 for 2017, $0 for 2016, and $183,000 for 2015.  Interest costs were $62,000, $63,000, and $56,000 for 2017, 2016, and 2015, respectively.

The deferred compensation plan and supplemental income plans are nonqualified and unfunded. Participation in each plan is limited to a select group of management.

Effective February 1, 2009, the Company established a nonqualified defined benefit retirement plan, which is also unfunded, for certain highly compensated employees.  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 years ended December 31 are summarized as follows (in thousands):

	2017		2016	2015
Service cost	$	—	41	38
Interest cost	69		78	68
Amortization of unrecognized (gain) loss	16		168	171
Net periodic pension cost	$	85	287	277

A reconciliation of changes in the projected benefit obligation of the nonqualified defined benefit retirement plan at December 31 follows (in thousands):

	2017			2016		2015
Projected benefit obligation at beginning of year	$	1,727		1,843		1,741
Service cost	—			41		38
Interest cost	69			78		68
Actuarial (gain) or loss	238			(209	)	10
Benefits paid	(63		)	(26	)	(14	)
Projected benefit obligation at end of year	$	1,971		1,727		1,843

Amounts recognized in other liabilities in the consolidated balance sheets for the nonqualified defined benefit retirement plan at December 31, 2017 and 2016 were $1,971,000 and $1,727,000, respectively.

The accumulated benefit obligation for the nonqualified defined benefit retirement plan at December 31, 2017 and 2016 was $1,971,000 and $1,727,000, respectively.

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

	2017		2016		2015
Net actuarial (gain)/loss	$	141	(16	)	233
Past service cost	—		—		—
	$	141	(16	)	233

The estimated unrecognized net actuarial gain that will be amortized from accumulated other comprehensive income into net periodic benefit cost during 2018 for the nonqualified defined benefit retirement plan is $16,000.

Key weighted-average assumptions used to determine the benefit obligation and net periodic pension costs for the nonqualified defined benefit retirement plan for the years ended December 31 were as follows:

	2017		2016		2015
Benefit obligation:
Discount rate	3.60	%	4.14	%	4.34	%
Salary increase rate	2.00	%	2.00	%	2.00	%
Net periodic pension cost:
Discount rate	4.14	%	4.34	%	3.95	%
Salary increase rate	2.00	%	2.00	%	2.00	%
Amortization period in years	1.00		1.00		1.98

The nonqualified defined benefit retirement plan is not funded.  Therefore no contributions will be made in 2018.  Estimated future benefit payments reflecting expected future service for the years ended after December 31, 2017 are (in thousands):

2018	$	130
2019	130
2020	130
2021	130
2022	130
2023-2027	633

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STOCK-BASED COMPENSATION

12 Months Ended

Dec. 31, 2017

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 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 approved 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 options since 2012. Option awards 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 December 31, 2017 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	4,356	$	9.00	1.1	4,356	$	9.00	1.1
$11.00 - 12.99	15,909	12.08		2.6	15,909	12.08		2.6
$17.00 - 18.99	—	—		0.0	—	—		0.0
	20,265	11.42		2.3	20,265	11.42		2.3

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

	2017			2016				2015
	Options		Weighted Average Exercise Price	Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price
Outstanding at January 1,	24,669		12.17	83,861		$	12.39	99,810		$	12.16
Granted	—		—	—		—		—		—
Exercised	(3,398	)	14.94	(51,390	)	11.53		(13,449	)	11.31
Expired	(1,006	)	17.88	(7,802	)	18.76		(2,500	)	9.00
Outstanding at December 31,	20,265		11.42	24,669		12.17		83,861		12.39
Exercisable at December 31,	20,265		11.42	22,924		12.13		75,072		12.40

The following table provides information related to stock options exercised during the years indicated (in thousands):

	2017		2016	2015
Intrinsic value of options exercised	$	25	288	67
Cash received from options exercised	51		592	152
Tax benefit realized from options exercised	5		59	13

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 December 31, 2017 that were “in the money” (market price greater than exercise price) was $183,000.  The aggregate intrinsic value at that date for only the options that were exercisable was $183,000.  The aggregate intrinsic value for options outstanding at December 31, 2016 that were in the money was $273,000 and the aggregate intrinsic value at that date for only the options that were exercisable was $255,000. The intrinsic value changes based on changes in the market value of the Company’s stock.

Total expense related to options included in salaries and wages in the consolidated statements of income for the years ended December 31, 2017, 2016, and 2015 was $1,000, $5,000, and $19,000, respectively. The related tax benefit for 2017, 2016, and 2015 was $0, $2,000, and $6,000, respectively. Compensation costs related to option awards were recognized in full during the first quarter 2017.

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

	2017				2016				2015
	Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value		Shares	Weighted Average Grant Date Fair Value
Outstanding at January 1,	8,624		$	15.47	16,038		$	15.47	—	$	—
Granted	4,027		22.60		—		—		16,038	15.47
Vested	(3,834	)	16.73		(7,414	)	15.47		—	—
Forfeited	—		—		—		—		—	—
Outstanding at December 31,	8,817		$	16.44	8,624		$	15.47	16,038	$	15.47

Total expense related to restricted stock awards included in salaries and wages in the consolidated statements of income for the years ended December 31, 2017, 2016, and 2015 was $75,000, $90,000, and $90,000 respectively. The related tax benefit for the years ended December 31, 2017, 2016, and 2015 was $26,000, $31,000, and $31,000, respectively. Unrecognized compensation expense for restricted stock awards was $84,000 at December 31, 2017 and is expected to be recognized over a period of 4.2 years.

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EARNINGS PER SHARE

12 Months Ended

Dec. 31, 2017

Earnings Per Share [Abstract]

EARNINGS PER SHARE

EARNINGS PER SHARE

LCNB has granted restricted stock awards with non-forfeitable dividend rights, which are considered participating securities. Accordingly, earnings per share is computed using the two-class method as required by FASB ASC 260-10-45. Basic earnings per common share is calculated by dividing net income allocated to common shareholders by the weighted average number of common shares outstanding during the period, which excludes the participating securities.  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.  

Earnings per share for the years ended December 31 were calculated as follows (in thousands, except share and per share data):

	2017		2016	2015
Net income	$	12,972	12,482	11,474
Less allocation of earnings and dividends to participating securities	7		13	—
Net income allocated to common shareholders	12,965		12,469	11,474
Weighted average common shares outstanding, gross	10,011,358		9,958,300	9,704,965
Less average participating securities	5,783		10,243	—
Weighted average number of shares outstanding used in the calculation of basic earnings per common share	10,005,575		9,948,057	9,704,965
Add dilutive effect of:
Stock options	6,936		10,765	17,174
Stock warrants	—		17,548	89,328
Adjusted weighted average number of shares outstanding used in the calculation of diluted earnings per common share	10,012,511		9,976,370	9,811,467
Earnings per common share:
Basic	$	1.30	1.26	1.18
Diluted	1.29		1.25	1.17

Options to purchase 12,962 shares of common stock at a weighted average price of $18.41 per share were outstanding at December 31, 2015 and 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 prices of the common shares. There were no such options at December 31, 2017 or 2016.

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RELATED PARTY TRANSACTIONS

12 Months Ended

Dec. 31, 2017

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

RELATED PARTY TRANSACTIONS

LCNB has entered into related party transactions with various directors and executive officers. Management believes these transactions do not involve more than a normal risk of collectibility or present other unfavorable features.  The following table provides a summary of the loan activity for these officers and directors for the years ended December 31 (in thousands):

	2017			2016
Beginning balance	$	1,447		1,091
New loans and advances	669			64
Change in composition of related parties	—			506
Reductions	(246		)	(214	)
Ending Balance	$	1,870		1,447

Deposits from executive officers, directors and related interests of such persons held by the Company at December 31, 2017 and 2016 amounted to $5,698,000 and $4,618,000, respectively.

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FAIR VALUE OF FINANCIAL INSTRUMENTS

12 Months Ended

Dec. 31, 2017

Fair Value Disclosures [Abstract]

FAIR VALUE OF FINANCIAL INSTRUMENTS

FAIR VALUE OF FINANCIAL INSTRUMENTS

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. Methods and significant assumptions used to estimate fair value are as follows:

• Fair value for U.S. Treasury notes are determined based on market quotations (level 1).

• Fair values for the other debt securities are 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.  

• Fair value for trust preferred and equity securities are determined based on market quotations (level 1). These securities are not priced by the pricing service.

• LCNB has investments in five mutual funds. These investments are not priced by the pricing service. Investments in two of the mutual funds are measured at fair value using net asset values ("NAV") per share as a practical expedient and are not required to be classified in the fair value hierarchy.  These funds can be redeemed at any time at their current NAVs. Two other mutual funds are traded in active markets and their fair values are based on market quotations (level 1). The investment in the remaining mutual fund, which 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 December 31 (in thousands):

				Fair Value Measurements at the End of the Reporting Period Using
		Fair Value Measurements		Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
December 31, 2017
Recurring fair value measurements:
Investment securities available-for-sale:
U.S. Treasury notes		$	2,259	2,259	—	—
U.S. Agency notes		83,261		—	83,261	—
U.S. Agency mortgage-backed securities		67,153		—	67,153	—
Municipal securities:
Non-taxable		102,174		—	102,174	—
Taxable		20,366		—	20,366	—
Mutual funds		1,023		23	1,000	—
Mutual funds measured at net asset value (a)		1,519
Trust preferred securities		50		50	—	—
Equity securities		667		667	—	—
Total recurring fair value measurements		$	278,472	2,999	273,954	—
Nonrecurring fair value measurements:
Impaired loans		$	3,359	—	—	3,359
December 31, 2016
Recurring fair value measurement:
Investment securities available-for-sale:
U.S. Treasury notes		$	28,145	28,145	—	—
U.S. Agency notes		85,400		—	85,400	—
U.S. Agency mortgage-backed securities		71,047		—	71,047	—
Municipal securities:
Non-taxable		113,015		—	113,015	—
Taxable		19,845		—	19,845	—
Mutual funds		1,000		—	1,000	—
Mutual funds measured at net asset value (a)		1,482
Trust preferred securities		48		48	—	—
Equity securities		677		677	—	—
Total recurring fair value measurements		$	320,659	28,870	290,307	—
Nonrecurring fair value measurements:
Impaired loans		$	5,340	—	—	5,340
(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 Balance Sheets.

The following table presents quantitative information about unobservable inputs used in nonrecurring Level 3 fair value measurements at December 31, 2017 and 2016 (dollars in thousands):

					Range
	Fair Value		Valuation Technique	Unobservable Inputs	High		Low		Weighted Average
2017
Impaired loans	$	3,359	Estimated sales price	Adjustments for comparable properties, discounts to reflect current market conditions	Not applicable
			Discounted cash flows	Discount rate	8.25	%	3.25	%	6.27	%
2016
Impaired loans	$	5,340	Estimated sales price	Adjustments for comparable properties, discounts to reflect current market conditions	Not applicable
			Discounted cash flows	Discount rate	8.25	%	4.50	%	5.56	%

Carrying amounts and estimated fair values of financial instruments as of December 31 were 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)
2017
FINANCIAL ASSETS:
Cash and cash equivalents	$	25,386	25,386	25,386	—	—
Investment securities, held-to-maturity	32,571		32,350	—	—	32,350
Federal Reserve Bank stock	2,732		2,732	2,732	—	—
Federal Home Loan Bank stock	3,638		3,638	3,638	—	—
Loans, net	845,657		813,368	—	—	813,368
Accrued interest receivable	3,511		3,511	—	3,511	—
FINANCIAL LIABILITIES:
Deposits	1,085,821		1,087,086	894,046	193,040	—
Short-term borrowings	47,000		47,000	47,000	—	—
Long-term debt	303		307	—	307	—
Accrued interest payable	329		329	—	329	—
2016
FINANCIAL ASSETS:
Cash and cash equivalents	$	18,865	18,865	18,865	—	—
Investment securities, held-to-maturity	41,003		40,490	—	—	40,490
Federal Reserve Bank stock	2,732		2,732	2,732	—	—
Federal Home Loan Bank stock	3,638		3,638	3,638	—	—
Loans, net	816,228		799,791	—	—	799,791
Accrued interest receivable	3,559		3,559	—	3,559	—
FINANCIAL LIABILITIES:
Deposits	1,110,905		1,113,187	896,147	217,040	—
Short-term borrowings	42,040		42,040	42,040	—	—
Long-term debt	598		614	—	614	—
Accrued interest payable	307		307	—	307	—

The fair values of off-balance-sheet financial instruments such as loan commitments and letters of credit are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements. The fair values of such instruments were not material at December 31, 2017 and 2016.

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 the Company.  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 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.

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QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

12 Months Ended

Dec. 31, 2017

Quarterly Financial Information Disclosure [Abstract]

QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following table sets forth certain quarterly results for the years ended December 31, 2017 and 2016 (dollars in thousands, except per share data):

	Three Months Ended
	March 31		June 30	Sep. 30		Dec. 31
2017
Interest income	$	10,864	10,934	11,055		11,610
Interest expense	877		861	908		953
Net interest income	9,987		10,073	10,147		10,657
Provision for loan losses	15		222	(12	)	(10	)
Net interest income after provision	9,972		9,851	10,159		10,667
Total non-interest income	2,430		2,790	2,659		2,579
Total non-interest expenses	7,968		8,611	8,672		8,612
Income before income taxes	4,434		4,030	4,146		4,634
Provision for income taxes	1,188		1,027	1,040		1,017
Net income	$	3,246	3,003	3,106		3,617
Earnings per common share:
Basic	$	0.32	0.30	0.31		0.37
Diluted	0.32		0.30	0.31		0.36
2016
Interest income	$	10,621	11,008	10,895		11,226
Interest expense	849		883	885		887
Net interest income	9,772		10,125	10,010		10,339
Provision for loan losses	90		396	372		55
Net interest income after provision	9,682		9,729	9,638		10,284
Total non-interest income	2,642		2,750	2,846		2,615
Total non-interest expenses	8,292		8,468	8,593		7,908
Income before income taxes	4,032		4,011	3,891		4,991
Provision for income taxes	1,068		1,043	995		1,337
Net income	$	2,964	2,968	2,896		3,654
Earnings per common share:
Basic	$	0.30	0.30	0.29		0.37
Diluted	0.30		0.29	0.29		0.37

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PARENT COMPANY FINANCIAL INFORMATION

12 Months Ended

Dec. 31, 2017

Condensed Financial Information of Parent Company Only Disclosure [Abstract]

PARENT COMPANY FINANCIAL INFORMATION

PARENT COMPANY FINANCIAL INFORMATION

Condensed financial information for LCNB Corp., parent company only, follows (in thousands):

Condensed Balance Sheets:
December 31,	2017		2016
Assets:
Cash on deposit with subsidiary	$	308	491
Investment securities available-for-sale, at fair value	919		893
Investment in subsidiaries	148,850		141,325
Other assets	194		235
Total assets	$	150,271	142,944
Liabilities	$	—	—
Shareholders' equity	150,271		142,944
Total liabilities and shareholders' equity	$	150,271	142,944

Condensed Statements of Income
Year ended December 31,	2017		2016	2015
Income:
Dividends from subsidiaries	$	6,800	7,300	5,400
Interest and dividends	36		38	58
Net gain on sales of securities	14		8	254
Total income	6,850		7,346	5,712
Total expenses	1,290		1,014	1,016
Income before income tax expense/benefit and equity in undistributed income of subsidiaries	5,560		6,332	4,696
Income tax benefit	380		336	250
Equity in undistributed income of subsidiaries	7,032		5,814	6,528
Net income	$	12,972	12,482	11,474

Condensed Statements of Cash Flows
Year ended December 31,	2017			2016		2015
Cash flows from operating activities:
Net income	$	12,972		12,482		11,474
Adjustments for non-cash items -
Increase in undistributed income of subsidiaries	(7,032		)	(5,814	)	(6,528	)
Other, net	84			126		42
Net cash flows provided by operating activities	6,024			6,794		4,988
Cash flows from investing activities:
Purchases of securities available-for-sale	(54		)	(177	)	(215	)
Proceeds from maturities of securities available-for-sale	50			55		—
Proceeds from sales of available-for-sale securities	43			173		1,217
Investments in subsidiaries	(250		)	—		—
Cash paid for business acquisition	—			—		(3,757	)
Net cash flows provided by (used in) investing activities	(211		)	51		(2,755	)
Cash flows from financing activities:
Proceeds from issuance of common stock	360			379		390
Repurchase of stock warrants	—			(1,545	)	—
Cash dividends paid on common stock	(6,407		)	(6,375	)	(6,239	)
Other	51			653		165
Net cash flows used in financing activities	(5,996		)	(6,888	)	(5,684	)
Net change in cash	(183		)	(43	)	(3,451	)
Cash at beginning of year	491			534		3,985
Cash at end of year	$	308		491		534

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Dec. 31, 2017

Accounting Policies [Abstract]

BASIS OF PRESENTATION

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of the Company and its subsidiaries. Significant intercompany accounts and transactions are eliminated in consolidation.  The accounting and reporting policies of the Company conform with U.S. generally accepted accounting principles and with general practices in the banking industry.

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

USE OF ESTIMATES

USE OF ESTIMATES

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.

CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS

For purposes of reporting cash flows, cash and cash equivalents include cash, balances due from banks, federal funds sold, and interest-bearing demand deposits with original maturities of twelve months or less.  Deposits with other banks routinely have balances greater than FDIC insured limits.  Management considers the risk of loss to be very low with respect to such deposits.

INVESTMENT SECURITIES

INVESTMENT SECURITIES

Certain municipal debt securities that management has the positive intent and ability to hold to maturity are classified as “held-to-maturity” and recorded at amortized cost.  Securities not classified as held-to-maturity are classified as “available-for-sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income, a separate component of shareholders’ equity.  Amortization of premiums and accretion of discounts are recognized as adjustments to interest income using the level-yield method.  Realized gains or losses from the sale of securities are recorded on the trade date and are computed using the specific identification method.

Declines in the fair value of securities below their cost that are deemed to be other-than-temporarily impaired, and for which the Company does not intend to sell the securities and it is not more likely than not that the securities will be sold before the anticipated recovery of the impairment, are separated into losses related to credit factors and losses related to other factors.  The losses related to credit factors are recognized in earnings and losses related to other factors are recognized in other comprehensive income.  In estimating other than temporary impairment losses, management considers the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. The Company's consolidated statements of income as of December 31, 2017, 2016, and 2015, do not reflect any such impairment.

Federal Home Loan Bank ("FHLB") stock is an equity interest in the Federal Home Loan Bank of Cincinnati.  It can be sold only at its par value of $100 per share and only to the FHLB or to another member institution.  In addition, the equity ownership rights are more limited than would be the case for a public company because of the oversight role exercised by the Federal Housing Finance Agency in the process of budgeting and approving dividends.  Federal Reserve Bank stock is similarly restricted in marketability and value.  Both investments are carried at cost, which is their par value.

FHLB and Federal Reserve Bank stock are both subject to minimum ownership requirements by member banks.  The required investments in common stock are based on predetermined formulas.

LOANS

LOANS

The Company’s loan portfolio includes most types of commercial and industrial loans, commercial loans secured by real estate, residential real estate loans, consumer loans, agricultural loans and other types of loans. Most of the properties collateralizing the loan portfolio are located within the Company’s market area.

Loans are stated at the principal amount outstanding, net of unearned income, deferred origination fees and costs, and the allowance for loan losses.  Interest income is accrued on the unpaid principal balance. The delinquency status of a loan is based on contractual terms and not on how recently payments have been received.  Generally, a loan is placed on non-accrual status when it is classified as impaired or there is an indication that the borrower’s cash flow may not be sufficient to make payments as they come due, unless the loan is well secured and in the process of collection.  Subsequent cash receipts on non-accrual loans are recorded as a reduction of principal and interest income is recorded once principal recovery is reasonably assured.  The current year's accrued interest on loans placed on non-accrual status is charged against earnings. Previous years' accrued interest is charged against the allowance for loan losses. Non-accrual loans are returned to accrual status when, in the opinion of management, the financial position of the borrower indicates there is no longer a reasonable doubt as to the timely collection of interest or principal.

Loan origination fees and certain direct loan origination costs are deferred and the net amount amortized as an adjustment of loan yields.  These amounts are being amortized over the lives of the related loans.

In the ordinary course of business, the Company enters into off-balance sheet financial instruments consisting of commitments to extend credit and standby letters of credit.  Such financial instruments are recorded in the financial statements when they are funded.  The credit risk associated with these commitments is evaluated in a manner similar to the allowance for loan losses.

ALLOWANCE FOR LOAN LOSSES

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 collectibility of the principal is unlikely.  Consumer loans are charged off when they reach 120 days past due.  Subsequent recoveries, if any, are credited to the allowance.

The provision for loan losses is determined by management based upon its evaluation of the amount needed to maintain the allowance for loan losses at a level considered appropriate in relation to the estimated risk of losses inherent in the portfolio.  Current methodology used by management to estimate the allowance takes into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, historic categorical trends, current delinquency levels as related to historical levels, portfolio growth rates, changes in composition of the portfolio, the current economic environment, as well as current allowance adequacy in relation to the portfolio.  Management is cognizant that reliance on historical information coupled with the cyclical nature of the economy, including credit cycles, affects the allowance.  Management considers all of these factors prior to making any adjustments to the allowance due to the subjectivity and imprecision involved in allocation methodology.  This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of specific and general components.  The specific component relates to loans that are specifically reviewed for impairment.  For such loans, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan.  The general component covers loans not specifically reviewed for impairment and homogeneous loan pools, such as residential real estate and consumer loans.  The general component is measured for each loan category separately based on each category’s average of historical loss experience over a trailing sixty month period, adjusted for qualitative factors.  Such qualitative factors may include current economic conditions if different from the five-year historical loss period, trends in underperforming loans, trends in volume and terms of loan categories, concentrations of credit, and trends in loan quality.

A loan is considered impaired when management believes, based on current information and events, it is probable that the Bank will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the loan agreement.  An impaired loan is measured by the present value of expected future cash flows using the loan's effective interest rate.  An impaired collateral-dependent loan may be measured based on collateral value.  Smaller-balance homogeneous loans, including residential mortgage and consumer installment loans, that are not evaluated individually are collectively evaluated for impairment.

PREMISES AND EQUIPMENT

PREMISES AND EQUIPMENT

Premises and equipment are stated at cost less accumulated depreciation.  Depreciation is computed on both the straight-line and accelerated methods over the estimated useful lives of the assets, generally 15 to 40 years for premises and 3 to 10 years for equipment.  Leasehold improvements are amortized over the terms of the respective leases or the estimated useful lives of the improvements, whichever is shorter. Costs incurred for maintenance and repairs are expensed as incurred. Premises and equipment are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of a particular asset may not be recoverable.

OTHER REAL ESTATE OWNED

OTHER REAL ESTATE OWNED

Other real estate owned includes properties acquired through foreclosure.  Such property is held for sale and is initially recorded at fair value, less costs to sell, establishing a new cost basis.  Fair value is primarily based on a property appraisal obtained at the time of transfer and any periodic updates that may be obtained thereafter.  The allowance for loan losses is charged for any write down of the loan’s carrying value to fair value at the date of transfer.  Any subsequent reductions in fair value and expenses incurred from holding other real estate owned are charged to other non-interest expense.  Costs, excluding interest, relating to the improvement of other real estate owned are capitalized.  Gains and losses from the sale of other real estate owned are included in other non-interest expense.

GOODWILL AND OTHER INTANGIBLE ASSETS

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill is the excess of the purchase price over the fair value of the net identifiable assets acquired in a business combination.  Goodwill is not amortized, but is instead subject to an annual review for impairment.

Mortgage servicing rights on originated mortgage loans that have been sold are initially recorded at their estimated fair values.  Mortgage servicing rights are amortized to loan servicing income in proportion to and over the period of estimated servicing income.  Such assets are periodically evaluated as to the recoverability of their carrying value.

The Company’s other intangible assets relate to core deposits acquired from business combinations.  These intangible assets are amortized on a straight-line basis over their estimated useful lives.  Management evaluates whether events or circumstances have occurred that indicate the remaining useful life or carrying value of the amortizing intangible should be revised.

BANK OWNED LIFE INSURANCE

BANK OWNED LIFE INSURANCE

The Company has purchased life insurance policies on certain officers of the Company.  The Company is the beneficiary of these policies and has recorded the estimated cash surrender value in other assets in the consolidated balance sheets.  Income on the policies, based on the increase in cash surrender value and any incremental death benefits, is included in other non-interest income in the consolidated statements of income.

AFFORDABLE HOUSING TAX CREDIT LIMITED PARTNERSHIP

AFFORDABLE HOUSING TAX CREDIT LIMITED PARTNERSHIP

LCNB has elected to account for its investment in an affordable housing tax credit limited partnership using the proportional amortization method described in FASB ASU 2014-01, "Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects (A Consensus of the FASB Emerging Issues Task Force)." Under the proportional amortization method, an investor amortizes the initial cost of the investment to income tax expense in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense. The investment in the limited partnership is included in other assets and the unfunded amount is included in accrued interest and other liabilities in LCNB's consolidated balance sheets.

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

Accounting guidance establishes a fair value hierarchy to prioritize the inputs to valuation techniques used to measure fair value.  A financial instrument’s level within the hierarchy is based on the lowest level of input that is significant to the fair value measurement.  The three broad input levels are:

• 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; and

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

Accounting guidance permits, but does not require, companies to measure many financial instruments and certain other items at fair value.  The decision to elect the fair value option is made individually for each instrument and is irrevocable once made.  Changes in fair value for the selected instruments are recorded in earnings. The Company did not select any financial instruments for the fair value election in 2017 or 2016.

ADVERTISING EXPENSE

ADVERTISING EXPENSE

Advertising costs are expensed as incurred and are recorded as a marketing expense, a component of non-interest expense.

PENSION PLANS

PENSION PLANS

Eligible employees of the Company hired before 2009 participate in a multiple-employer qualified noncontributory defined benefit retirement plan.  This plan is accounted for as a multi-employer plan because assets contributed by an employer are not segregated in a separate account or restricted to provide benefits only to employees of that employer.

Citizens National had a qualified noncontributory, defined benefit pension plan, which has been assumed by the Company, that covers eligible employees hired before May 1, 2005. This is a single employer plan.

TREASURY STOCK

TREASURY STOCK

Common shares repurchased are recorded at cost. Cost of shares retired or reissued is determined using the weighted average method.

STOCK OPTIONS AND RESTRICTED STOCK AWARD PLANS

STOCK OPTIONS AND RESTRICTED STOCK AWARD PLANS

The cost of employee services received in exchange for stock option grants is the grant-date fair value of the award estimated using an option-pricing model.  The compensation cost for restricted stock awards is based on the market price of the Company's common stock at the date of grant multiplied by the number of shares granted that are expected to vest. The estimated cost is recognized on a straight-line basis over the period the employee is required to provide services in exchange for the award, usually the vesting period.  The Company uses a Black-Scholes pricing model and related assumptions for estimating the fair value of stock option grants and a five-year vesting period for stock options and restricted stock.

INCOME TAXES

INCOME TAXES

Deferred income taxes are determined using the asset and liability method of accounting.  Under this method, the net deferred tax asset or liability is determined based on the tax effects of temporary differences between the book and tax basis of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws.

Management analyzes material tax positions taken in any income tax return for any tax jurisdiction and determines the likelihood of the positions being sustained in a tax examination.  A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur.  The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination.  For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

EARNINGS PER SHARE

EARNINGS PER SHARE

Basic earnings per share allocated  to common shareholders is calculated using the two-class method and is computed by dividing net income allocated to common shareholders by the weighted average number of common shares outstanding during the period.  Diluted earnings per share is adjusted for the dilutive effects of stock based compensation and warrants and is calculated using the two-class method or the treasury stock method.  The diluted average number of common shares outstanding has been increased for the assumed exercise of stock based compensation and warrants with the proceeds used to purchase treasury shares at the average market price for the period.

RECENT ACCOUNTING PRONOUNCEMENTS

RECENT ACCOUNTING PRONOUNCEMENTS

From time to time the FASB issues an Accounting Standards Update ("ASU") to communicate changes to Generally Accepted Accounting Principles ("GAAP"). 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.

Guidance in ASU No. 2014-09 has been clarified by the following ASUs:

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

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

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

• ASU No. 2016-20, "Revenue from Contracts with Customers (Topic 606): Technical Corrections and Improvements"

As extended by ASU No. 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date," ASU No. 2014-09 and the clarifying ASUs are 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 updates. Earlier adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. LCNB's revenue is comprised of net interest income, which is explicitly excluded from the scope of ASU No. 2014-09, and non-interest income. LCNB management has finalized its assessment of the update's affect on non-interest income and has determined that the amendments in ASU No. 2014-09 will not result in a material change from current accounting. Changes to related disclosures are still being analyzed.

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 did not 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 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 estimates that it will recognize discounted right of use assets and lease liabilities totaling approximately $5 million for the leases disclosed in Note 8 - Leases. This projection is based on various assumptions, including the level of interest rates and no significant increases in leasing activity, that may change between now and the effective date.

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. While LCNB's Loan Committee expects that the implementation of ASU No. 2016-13 will increase the balance of the allowance for loan losses, it is continuing to evaluate the potential impact on LCNB's results of operations and financial position. The Loan Committee is currently analyzing its data collection efforts, pool segmentation, and reporting mechanisms to prepare for adoption of this ASU. The financial statement impact of this new standard cannot be reasonably estimated at this time.

ASU No. 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment"

ASU No. 2017-04 was issued in January 2017 and applies to public and other entities that have goodwill reported in their financial statements. To simplify the subsequent measurement of goodwill, this ASU eliminates Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities, including unrecognized assets and liabilities, following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in this update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. A public business entity that is an SEC filer should adopt the amendments in this update on a prospective basis for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Adoption of ASU No. 2017-04 is not expected to have a material impact on LCNB's results of operations or financial position.

ASU No. 2017-07, "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost

and Net Periodic Postretirement Benefit Cost"

ASU No. 2017-07 was issued in March 2017 and applies to all employers that offer to their employees defined benefit pension plans, other postretirement benefit plans, or other types of benefits accounted for under Topic 715. The amendments in this update require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost, as defined, are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed. The amendments in ASU No. 2017-07 are effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The amendments in this update are to be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement. Adoption of ASU No. 2017-07 did not have a material impact on LCNB's results of operations or financial position.

ASU No. 2017-09, "Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting"

ASU No. 2017-09 was issued in May 2017 and applies to any entity that changes the terms or conditions of a share-based payment award. The amendments in this update provide that an entity would not apply modification accounting under the guidance in Topic 718 if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification. The amendments are to be applied prospectively and are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Adoption of ASU No. 2017-09 did not have a material impact on LCNB's results of operations or financial position.

ASU No. 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities"

ASU No. 2017-12 was issued in August 2017 and applies to any entity that elects to apply hedge accounting in accordance with current generally accepted accounting principles. The amendments in this update better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. To meet that objective, the amendments expand and refine hedge accounting for both nonfinancial and financial risk components. The amendments are effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early application is permitted. LCNB does not currently own any instruments within the scope of ASU No. 2017-12 and its adoption is not expected to have a material impact on its results of operations or financial position.

ASU No. 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income"

ASU No. 2018-02 was issued in February 2018 and addresses a narrow-scope financial reporting issue that arose as a consequence of the passage of H.R. 1, originally known as the “Tax Cuts and Jobs Act.” GAAP requires adjustment of deferred tax assets and liabilities for the effect of a change in tax laws or rates with the effect to be included in income from continuing operations in the reporting period that includes the enactment date. This guidance is applicable even in situations in which the related income tax effects of items in accumulated other comprehensive income were originally recognized in other comprehensive income rather than in income from continuing operations. As a consequence, the tax effects of items within accumulated other comprehensive income, referred to as stranded tax effects in the update, do not reflect the appropriate tax rate. The amendments in ASU No. 2018-02 allow a reclassification from accumulated other comprehensive income to retained earnings for the stranded tax effects resulting from the Tax Cuts and Jobs Act. Because the amendments only relate to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. ASU No. 2018-02 is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period. LCNB intends to early adopt ASU No. 2018-02 as of January 1, 2018 and reclassify its stranded tax effects totaling $486,000 (credit) into retained earnings.

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INVESTMENT SECURITIES (Tables)

12 Months Ended

Dec. 31, 2017

Investments, Debt and Equity Securities [Abstract]

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

The amortized cost and fair value of available-for-sale investment securities at December 31 are summarized as follows (in thousands):

	Amortized Cost		Unrealized Gains	Unrealized Losses	Fair Value
2017
Investment Securities Available-for-Sale:
U.S. Treasury notes	$	2,283	—	24	2,259
U.S. Agency notes	84,837		57	1,633	83,261
U.S. Agency mortgage-backed securities	68,347		33	1,227	67,153
Municipal securities:
Non-taxable	102,849		343	1,018	102,174
Taxable	20,313		175	122	20,366
Mutual funds	2,586		2	46	2,542
Trust preferred securities	49		1	—	50
Equity securities	574		97	4	667
	$	281,838	708	4,074	278,472
Investment Securities Held-to-Maturity:
Municipal securities:
Non-taxable	$	28,871	101	227	28,745
Taxable	3,700		—	95	3,605
	$	32,571	101	322	32,350
2016
Investment Securities Available-for-Sale:
U.S. Treasury notes	$	28,180	41	76	28,145
U.S. Agency notes	87,098		150	1,848	85,400
U.S. Agency mortgage-backed securities	72,402		89	1,444	71,047
Municipal securities:
Non-taxable	114,064		574	1,623	113,015
Taxable	19,710		220	85	19,845
Mutual funds	2,527		—	45	2,482
Trust preferred securities	49		—	1	48
Equity securities	632		55	10	677
	$	324,662	1,129	5,132	320,659
Investment Securities Held-to-Maturity:
Municipal securities:
Non-taxable	$	31,015	56	352	30,719
Taxable	9,988		—	217	9,771
	$	41,003	56	569	40,490

Securities in a Continuous Loss Position

Information concerning securities with gross unrealized losses at December 31, 2017 and 2016, aggregated by length of time that individual securities have been in a continuous loss position, is as follows (in thousands):

	Less Than Twelve Months			Twelve Months or More
	Fair Value		Unrealized Losses	Fair Value	Unrealized Losses
2017
Investment Securities Available-for-Sale:
U.S. Treasury notes	$	2,259	24	—	—
U.S. Agency notes	33,651		344	44,560	1,289
U.S. Agency mortgage-backed securities	24,433		142	41,080	1,085
Municipal securities:
Non-taxable	36,348		315	24,197	703
Taxable	11,068		114	1,032	8
Mutual funds	—		—	1,519	46
Trust preferred securities	—		—	—	—
Equity securities	119		2	17	2
	$	107,878	941	112,405	3,133
Investment Securities Held-to-Maturity:
Municipal securities:
Non-taxable	$	9,824	133	3,542	94
Taxable	—		—	3,205	95
	$	9,824	133	6,747	189
2016
Investment Securities Available-for-Sale:
U.S. Treasury notes	$	16,076	76	—	—
U.S. Agency notes	69,784		1,848	—	—
U.S. Agency mortgage-backed securities	64,564		1,310	3,518	134
Municipal securities:
Non-taxable	72,867		1,621	451	2
Taxable	9,721		82	450	3
Mutual funds	1,205		37	277	8
Trust preferred securities	49		1	—	—
Equity securities	201		10	—	—
	$	234,467	4,985	4,696	147
Investment Securities Held-to-Maturity:
Municipal securities:
Non-taxable	$	20,429	251	2,564	101
Taxable	8,030		217	—	—
	$	28,459	468	2,564	101

Investments Classified by Contractual Maturity Date

Contractual maturities of investment securities at December 31, 2017 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	$	11,222	11,267	4,043	4,047
Due from one to five years	92,900		92,453	4,128	4,045
Due from five to ten years	102,520		100,836	8,415	8,286
Due after ten years	3,640		3,504	15,985	15,972
	210,282		208,060	32,571	32,350
U.S. Agency mortgage-backed securities	68,347		67,153	—	—
Mutual funds	2,586		2,542	—	—
Trust preferred securities	49		50	—	—
Equity securities	574		667	—	—
	$	281,838	278,472	32,571	32,350

Realized Gain (Loss) on Investment Securities Available-for-Sale

Certain information concerning the sale of investment securities available-for-sale for the years ended December 31 was as follows (in thousands):

	2017		2016	2015
Proceeds from sales	$	43,246	92,455	97,981
Gross realized gains	247		1,103	627
Gross realized losses	14		21	132

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LOANS (Tables)

12 Months Ended

Dec. 31, 2017

Receivables [Abstract]

Major Classifications of Loans

Major classifications of loans at December 31 were as follows (in thousands):

	2017		2016
Commercial and industrial	$	36,057	41,878
Commercial, secured by real estate	527,947		477,275
Residential real estate	251,582		265,788
Consumer	17,450		19,173
Agricultural	15,194		14,802
Other loans, including deposit overdrafts	539		633
	848,769		819,549
Deferred origination costs, net	291		254
	849,060		819,803
Less allowance for loan losses	3,403		3,575
Loans-net	$	845,657	816,228

Schedule of Acquired Non Impaired Loans

Acquired Loans Accounted for in Accordance with FASB ASC 310-30

Non-accrual, Past Due, and Accruing Restructured Loans

Non-accrual, past-due, and accruing restructured loans at December 31 were as follows (dollars in thousands):

	2017			2016
Non-accrual loans:
Commercial and industrial	$	—		—
Commercial, secured by real estate	2,183			4,312
Agricultural	178			334
Residential real estate	604			1,079
Total non-accrual loans	2,965			5,725
Past-due 90 days or more and still accruing	—			23
Total non-accrual and past-due 90 days or more and still accruing	2,965			5,748
Accruing restructured loans	10,469			11,731
Total	$	13,434		17,479
Percentage of total non-accrual and past-due 90 days or more and still accruing to total loans	0.35		%	0.70	%
Percentage of total non-accrual, past-due 90 days or more and still accruing, and accruing restructured loans to total loans	1.58		%	2.13	%

Allowance for Loan Losses and Recorded Investments in Loans

The allowance for loan losses and recorded investment in loans for the years ended December 31 were as follows (in thousands):

	Commercial & Industrial			Commercial, Secured by Real Estate		Residential Real Estate		Consumer		Agricultural		Other		Total
December 31, 2017
Allowance for loan losses:
Balance, beginning of year	$	350		2,179		885		96		60		5		3,575
Provision charged to expenses	(71		)	348		(83	)	(44	)	(7	)	72		215
Losses charged off	—			(462	)	(225	)	(90	)	—		(138	)	(915	)
Recoveries	99			113		140		114		—		62		528
Balance, end of year	$	378		2,178		717		76		53		1		3,403
Individually evaluated for impairment	$	8		146		29		8		—		—		191
Collectively evaluated for impairment	370			2,032		688		68		53		1		3,212
Acquired credit impaired loans	—			—		—		—		—		—		—
Balance, end of year	$	378		2,178		717		76		53		1		3,403
Loans:
Individually evaluated for impairment	$	303		11,289		1,351		47		177		—		13,167
Collectively evaluated for impairment	34,792			512,259		248,674		17,516		15,033		137		828,411
Acquired credit impaired loans	1,008			4,048		2,024		—		—		402		7,482
Balance, end of year	$	36,103		527,596		252,049		17,563		15,210		539		849,060
December 31, 2016
Allowance for loan losses:
Balance, beginning of year	$	244		1,908		854		54		66		3		3,129
Provision charged to expenses	314			358		106		74		(6	)	67		913
Losses charged off	(234		)	(185	)	(127	)	(85	)	—		(119	)	(750	)
Recoveries	26			98		52		53		—		54		283
Balance, end of year	$	350		2,179		885		96		60		5		3,575
Individually evaluated for impairment	$	9		55		100		13		—		—		177
Collectively evaluated for impairment	341			1,832		785		83		60		5		3,106
Acquired credit impaired loans	—			292		—		—		—		—		292
Balance, end of year	$	350		2,179		885		96		60		5		3,575
Loans:
Individually evaluated for impairment	$	337		12,580		1,518		52		334		—		14,821
Collectively evaluated for impairment	41,466			458,059		262,266		19,192		14,475		178		795,636
Acquired credit impaired loans	98			6,305		2,471		17		—		455		9,346
Balance, end of year	$	41,901		476,944		266,255		19,261		14,809		633		819,803

	Commercial & Industrial			Commercial, Secured by Real Estate		Residential Real Estate		Consumer		Agricultural		Other		Total
December 31, 2015
Allowance for loan losses:
Balance, beginning of year	$	129		1,990		926		63		11		2		3,121
Provision charged to expenses	208			955		125		(17	)	55		40		1,366
Losses charged off	(100		)	(1,133	)	(304	)	(52	)	(67	)	(74	)	(1,730	)
Recoveries	7			96		107		60		67		35		372
Balance, end of year	$	244		1,908		854		54		66		3		3,129
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 year	$	244		1,908		854		54		66		3		3,129

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

An analysis of the Company’s loan portfolio by credit quality indicators at December 31 is as follows (in thousands):

	Pass		OAEM	Substandard	Doubtful	Total
December 31, 2017
Commercial & industrial	$	35,683	176	244	—	36,103
Commercial, secured by real estate	506,833		2,180	18,583	—	527,596
Residential real estate	250,039		—	2,010	—	252,049
Consumer	17,522		—	41	—	17,563
Agricultural	14,233		—	977	—	15,210
Other	539		—	—	—	539
Total	$	824,849	2,356	21,855	—	849,060
December 31, 2016
Commercial & industrial	$	41,178	304	419	—	41,901
Commercial, secured by real estate	443,781		5,479	27,684	—	476,944
Residential real estate	261,839		442	3,974	—	266,255
Consumer	19,182		—	79	—	19,261
Agricultural	13,311		—	1,498	—	14,809
Other	633		—	—	—	633
Total	$	779,924	6,225	33,654	—	819,803

Loan Portfolio Aging Analysis

The Company evaluates the loan risk grading system definitions and allowance

Impaired Loans

Impaired loans for the years ended December 31 were as follows (in thousands):

	Recorded Investment		Unpaid Principal Balance	Related Allowance	Average Recorded Investment	Interest Income Recognized
December 31, 2017
With no related allowance recorded:
Commercial & industrial	$	1,015	1,100	—	685	88
Commercial, secured by real estate	12,677		13,608	—	14,113	1,068
Residential real estate	2,822		3,516	—	3,216	546
Consumer	6		6	—	20	2
Agricultural	177		177	—	269	12
Other	402		554	—	441	55
Total	$	17,099	18,961	—	18,744	1,771
With an allowance recorded:
Commercial & industrial	$	296	301	8	311	18
Commercial, secured by real estate	2,660		2,660	146	2,739	45
Residential real estate	553		572	29	596	19
Consumer	41		41	8	43	3
Agricultural	—		—	—	—	—
Other	—		—	—	—	—
Total	$	3,550	3,574	191	3,689	85
Total:
Commercial & industrial	$	1,311	1,401	8	996	106
Commercial, secured by real estate	15,337		16,268	146	16,852	1,113
Residential real estate	3,375		4,088	29	3,812	565
Consumer	47		47	8	63	5
Agricultural	177		177	—	269	12
Other	402		554	—	441	55
Total	$	20,649	22,535	191	22,433	1,856

	Recorded Investment		Unpaid Principal Balance	Related Allowance	Average Recorded Investment	Interest Income Recognized
December 31, 2016
With no related allowance recorded:
Commercial & industrial	$	109	263	—	998	151
Commercial, secured by real estate	14,195		15,522	—	15,274	1,140
Residential real estate	3,238		4,286	—	3,736	369
Consumer	26		27	—	37	29
Agricultural	334		334	—	392	136
Other	455		629	—	481	77
Total	$	18,357	21,061	—	20,918	1,902
With an allowance recorded:
Commercial & industrial	$	326	326	9	341	19
Commercial, secured by real estate	4,690		4,946	347	4,194	257
Residential real estate	751		751	100	651	36
Consumer	43		43	13	43	3
Agricultural	—		—	—	—	—
Other	—		—	—	—	—
Total	$	5,810	6,066	469	5,229	315
Total:
Commercial & industrial	$	435	589	9	1,339	170
Commercial, secured by real estate	18,885		20,468	347	19,468	1,397
Residential real estate	3,989		5,037	100	4,387	405
Consumer	69		70	13	80	32
Agricultural	334		334	—	392	136
Other	455		629	—	481	77
Total	$	24,167	27,127	469	26,147	2,217

	Average Recorded Investment		Interest Income Recognized
December 31, 2015
With no related allowance recorded:
Commercial & industrial	$	1,467	206
Commercial, secured by real estate	18,575		2,229
Residential real estate	4,092		453
Consumer	106		25
Agricultural	81		487
Other	510		82
Total	$	24,831	3,482
With an allowance recorded:
Commercial & industrial	$	370	21
Commercial, secured by real estate	4,007		114
Residential real estate	864		37
Consumer	—		—
Agricultural	—		—
Other	—		—
Total	$	5,241	172
Total:
Commercial & industrial	$	1,837	227
Commercial, secured by real estate	22,582		2,343
Residential real estate	4,956		490
Consumer	106		25
Agricultural	81		487
Other	510		82
Total	$	30,072	3,654

Loan Modification that were Classified as Troubled Debt Restructuring

Loan modifications that were classified as troubled debt restructurings during the years ended December 31 were as follows (dollars in thousands):

	2017					2016					2015
	Number of Loans	Pre-Modification Recorded Balance		Post-Modification Recorded Balance		Number of Loans	Pre-Modification Recorded Balance		Post-Modification Recorded Balance		Number of Loans	Pre-Modification Recorded Balance		Post-Modification Recorded Balance
Commercial and industrial	—	$	—	$	—	—	$	—	$	—	—	$	—	$	—
Commercial, secured by real estate	—	—		—		4	2,142		2,215		1	75		74
Residential real estate	1	18		9		6	139		139		7	217		221
Consumer	1	14		14		3	39		39		2	9		9
	2	$	32	$	23	13	$	2,320	$	2,393	10	$	301	$	304

Troubled Debt Restructurings by Type of Modification

Post-modification balances of newly restructured troubled debt by type of modification for the years ended December 31 were as follows (in thousands):

	Term Modification		Rate Modification	Interest Only	Principal Forgiveness	Combination	Total Modifications
December 31, 2017
Commercial & industrial	$	—	—	—	—	—	—
Commercial, secured by real estate	—		—	—	—	—	—
Residential real estate	—		—	—	9	—	9
Consumer	14		—	—	—	—	14
Total	$	14	—	—	9	—	23
December 31, 2016
Commercial & industrial	$	—	—	—	—	—	—
Commercial, secured by real estate	1,539		—	304	—	372	2,215
Residential real estate	38		47	—	—	54	139
Consumer	—		28	—	—	11	39
Total	$	1,577	75	304	—	437	2,393
December 31, 2015
Commercial & industrial	$	—	—	—	—	—	—
Commercial, secured by real estate	74		—	—	—	—	74
Residential real estate	221		—	—	—	—	221
Consumer	9		—	—	—	—	9
Total	$	304	—	—	—	—	304

Schedule of Activity in the Mortgage Servicing Rights Portfolio

Activity in the mortgage servicing rights portfolio during the years ended December 31 was as follows (in thousands):

	2017			2016		2015
Balance, beginning of year	$	428		488		591
Amount capitalized to mortgage servicing rights	91			109		78
Amortization of mortgage servicing rights	(123		)	(169	)	(181	)
Balance, end of year	$	396		428		488

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ACQUIRED CREDIT IMPAIRED LOANS (Tables)

12 Months Ended

Dec. 31, 2017

Acquired Credit Impaired Loans [Abstract]

Schedule of carrying values of certain loans acquired in a transfer

The following table provides, as of December 31, the major classifications of loans acquired that are accounted for in accordance with FASB ASC 310-30 (in thousands):

	2017		2016
Commercial & industrial	$	1,008	98
Commercial, secured by real estate	4,048		6,305
Residential real estate	2,024		2,471
Consumer	—		17
Agricultural	—		—
Other loans, including deposit overdrafts	402		455
	7,482		9,346
Less allowance for loan losses	—		292
Loans, net	$	7,482	9,054

Outstanding and related carrying amount for acquired impaired loans

The following table provides the outstanding balance and related carrying amount for acquired impaired loans at December 31 (in thousands):

	2017		2016
Outstanding balance	$	9,065	12,289
Carrying amount	7,482		9,346

Accretable discount related to acquired impaired loans

Activity during 2017 and 2016 for the accretable discount related to acquired impaired loans is as follows (in thousands):

	2017			2016
Accretable discount, beginning of year	$	1,080		1,503
Accretable discount acquired during period	—			—
Reclass from nonaccretable discount to accretable discount	564			423
Less disposals	(170		)	(5	)
Less accretion	(805		)	(841	)
Accretable discount, end of year	$	669		1,080

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OTHER REAL ESTATE OWNED (Tables)

12 Months Ended

Dec. 31, 2017

Real Estate [Abstract]

Changes in Other Real Estate Owned

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

	2017			2016
Balance, beginning of year	$	—		846
Additions	974			214
Reductions due to sales	(974		)	(484	)
Reductions due to valuation write downs	—			(576	)
Balance, end of year	$	—		—

Components of Other Real Estate Owned

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PREMISES AND EQUIPMENT (Tables)

12 Months Ended

Dec. 31, 2017

Property, Plant and Equipment [Abstract]

Premises and Equipment

Premises and equipment at December 31 are summarized as follows (in thousands):

	2017		2016
Land	$	8,190	8,277
Buildings	31,965		21,400
Equipment	15,648		13,065
Construction in progress	120		7,362
Total	55,923		50,104
Less accumulated depreciation	20,996		19,860
Premises and equipment, net	$	34,927	30,244

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LEASES (Tables)

12 Months Ended

Dec. 31, 2017

Leases [Abstract]

Schedule of Future Minimum Rental Payments for Operating Leases

Minimum annual rentals for non-cancelable leases at December 31, 2017 that have terms in excess of one year were as follows (in thousands):

2018	$	321
2019	243
2020	207
2021	161
2022	164
Thereafter	3,363
Total	$	4,459

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GOODWILL AND OTHER INTANGIBLE ASSETS (Tables)

12 Months Ended

Dec. 31, 2017

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Goodwill

changes in goodwill during 2017 and 2016.

Schedule of Other Intangible Assets Included in Other Assets

Other intangible assets in the consolidated balance sheets at December 31, 2017 and 2016 were as follows (in thousands):

	2017				2016
	Gross Intangible Assets		Accumulated Amortization	Net Intangible Assets	Gross Intangible Assets	Accumulated Amortization	Net Intangible Assets
Core deposit intangibles	$	6,458	3,055	3,403	6,458	2,304	4,154
Mortgage servicing rights	1,279		883	396	1,188	760	428
Total	$	7,737	3,938	3,799	7,646	3,064	4,582

Estimated Aggregate Future Amortization Expense

The estimated aggregate future amortization expense for each of the next five years for intangible assets remaining as of December 31, 2017 is as follows (in thousands):

2018	$	848
2019	829
2020	815
2021	800
2022	224

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AFFORDABLE HOUSING TAX CREDIT LIMITED PARTNERSHIP (Tables)

12 Months Ended

Dec. 31, 2017

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 December 31 (in thousands):

	2017		2016
Affordable housing tax credit investment	$	3,000	2,000
Less amortization	231		93
Net affordable housing tax credit investment	$	2,769	1,907
Unfunded commitment	$	2,257	1,617

The net affordable housing tax credit investment is included in other assets and the unfunded commitment is included in accrued interest and other liabilities in the Consolidated Balance Sheets.

LCNB expects to fund the unfunded commitment over ten years.

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

	Year ended December 31,
	2017		2016	2015
Tax credits and other tax benefits recognized	$	180	103	14
Tax credit amortization expense included in provision for income taxes	138		81	12

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CERTIFICATES OF DEPOSIT (Tables)

12 Months Ended

Dec. 31, 2017

Deposits [Abstract]

Contractual Maturities of Time Deposits

Contractual maturities of time deposits at December 31, 2017 were as follows (in thousands):

2018	$	64,454
2019	34,893
2020	49,289
2021	32,370
2022	8,667
Thereafter	2,226
	$	191,899

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BORROWINGS (Tables)

12 Months Ended

Dec. 31, 2017

Debt Disclosure [Abstract]

Summary of funds borrowed from Federal Home Loan Bank

Funds borrowed from the FHLB at December 31 by year of maturity were as follows (dollars in thousands):

	Outstanding Balance		Average Rate
December 31, 2017
2018	$	248	2.82	%
2019	55		2.82	%
Total	$	303	2.82	%
December 31, 2016
2017	$	295	2.82	%
2018	248		2.82	%
2019	55		2.82	%
Total	$	598	2.82	%

Short-term borrowings

Short-term borrowings at December 31 were as follows (dollars in thousands):

	2017				2016
	Amount		Rate		Amount		Rate
Line of credit	$	—	—	%	$	—	—	%
FHLB short-term advance	47,000		1.43	%	25,000		0.63	%
Repurchase agreements	—		—	%	17,040		0.10	%
	$	47,000	1.43	%	$	42,040	0.42	%

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INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2017

Income Tax Disclosure [Abstract]

Provision for Federal Income Taxes

The provision for federal income taxes consists of (in thousands):

	2017			2016	2015
Income taxes currently payable	$	3,018		3,515	4,280
Revaluation of net deferred tax liability	(224		)	—	—
Deferred income tax provision (benefit)	1,478			928	(58	)
Provision for income taxes	$	4,272		4,443	4,222

Reconciliation Between Statutory Income Tax and Effective Tax Rate

A reconciliation between the statutory income tax and the Company's effective tax rate follows:

	2017		2016		2015
Statutory tax rate	34.0	%	34.0	%	34.0	%
Increase (decrease) resulting from -
Tax exempt interest	(6.0	)%	(6.3	)%	(6.0	)%
Tax exempt income on bank owned life insurance	(1.7	)%	(1.5	)%	(1.4	)%
Revaluation of net deferred tax liability	(1.3	)%	—	%	—	%
Captive insurance premium income	(0.9	)%	—	%	—	%
Other – net	0.7	%	0.1	%	0.3	%
Effective tax rate	24.8	%	26.3	%	26.9	%

Schedule of Deferred Tax Assets and Liabilities

Deferred tax assets and liabilities, included in the Consolidated Balance Sheets with accrued interest and other liabilities in 2017 and other assets in 2016, consist of the following at December 31 (in thousands):

	2017			2016
Deferred tax assets:
Allowance for loan losses	$	715		1,223
Net unrealized losses on investment securities available-for-sale	707			1,369
Fair value adjustment on loans acquired from merger with First Capital	238			592
Pension and deferred compensation	760			1,157
Other	471			546
	2,891			4,887
Deferred tax liabilities:
Depreciation of premises and equipment	(1,672		)	(1,332	)
Amortization of intangibles	(1,030		)	(1,567	)
Prepaid expenses	(210		)	—
Deferred loan fees	(1		)	(2	)
FHLB stock dividends	(216		)	(351	)
Fair value adjustment on securities acquired from merger with First Capital	(9		)	(19	)
	(3,138		)	(3,271	)
Net deferred tax (liabilities) assets	$	(247	)	1,616

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COMMITMENTS AND CONTINGENT LIABILITIES (Tables)

12 Months Ended

Dec. 31, 2017

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 December 31 were as follows (in thousands):

	2017		2016
Commitments to extend credit:
Commercial loans	$	18,964	10,350
Other loans:
Fixed rate	2,747		4,425
Adjustable rate	1,150		1,044
Unused lines of credit:
Fixed rate	20,984		9,731
Adjustable rate	90,147		80,222
Unused overdraft protection amounts on demand and NOW accounts	16,441		17,123
Standby letters of credit	294		657
	$	150,727	123,552

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REGULATORY MATTERS (Tables)

12 Months Ended

Dec. 31, 2017

Banking and Thrift [Abstract]

Financial institutions are classified into categories based upon capital adequacy

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

	Minimum Requirement		Minimum Requirement with Capital Conservation Buffer for 2017		To Be Considered Well-Capitalized
Ratio of Common Equity Tier 1 Capital to risk-weighted assets	4.5	%	5.75	%	6.5	%
Ratio of tier 1 capital to risk-weighted assets	6.0	%	7.25	%	8.0	%
Ratio of total capital (tier 1 capital plus tier 2 capital) to risk-weighted assets	8.0	%	9.25	%	10.0	%
Leverage ratio (tier 1 capital to adjusted quarterly average total assets)	4.0	%	N/A		5.0	%

Summary of regulatory capital and capital ratios of LCNB

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

	2017					2016
	Consolidated Company			Bank		Consolidated Company		Bank
Regulatory Capital:
Shareholders' equity	$	150,271		148,163		142,944		141,325
Goodwill and other intangible assets	(32,906		)	(32,906	)	(32,676	)	(32,676	)
Accumulated other comprehensive loss	2,828			2,859		2,617		2,605
Tier 1 risk-based capital	120,193			118,116		112,885		111,254
Eligible allowance for loan losses	3,403			3,403		3,575		3,575
Total risk-based capital	$	123,596		121,519		116,460		114,829
Capital Ratios:
Common Equity Tier 1 Capital to risk-weighted assets	13.29		%	13.07	%	13.00	%	12.82	%
Tier 1 capital to risk-weighted assets	13.29		%	13.07	%	13.00	%	12.82	%
Total capital (tier 1 capital plus tier 2 capital) to risk-weighted assets	13.66		%	13.45	%	13.41	%	13.24	%
Leverage ratio (tier 1 capital to adjusted quarterly average total assets)	9.51		%	9.36	%	8.81	%	8.69	%

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ACCUMULATED OTHER COMPREHENSIVE INCOME (Tables)

12 Months Ended

Dec. 31, 2017

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

Schedule of Accumulated Other Comprehensive Income (Loss)

Changes in accumulated other comprehensive income (loss) for 2017 and 2016 were as follows (in thousands):

	2017							2016
	Unrealized Gains and Losses on Available-for-Sale Securities			Changes in Pension Plan Assets and Benefit Obligations		Total		Unrealized Gains and Losses on Available-for-Sale Securities		Changes in Pension Plan Assets and Benefit Obligations		Total
Balance at beginning of year	$	(2,633	)	16		(2,617	)	469		(233	)	236
Before reclassifications	585			(158	)	427		(2,390	)	249		(2,141	)
Reclassifications	(152		)	—		(152	)	(712	)	—		(712	)
Balance at end of year	$	(2,200	)	(142	)	(2,342	)	(2,633	)	16		(2,617	)

Reclassification Out Of Accumulated Other Comprehensive Income

Reclassifications out of accumulated other comprehensive income (loss) during 2017 and 2016 and the affected line items in the consolidated statements of income were as follows (in thousands):

	2017		2016	Affected Line Item in the Consolidated Statements of Income
Realized gain on sales of securities	$	233	1,082	Net gain on sale of securities
Less provision for income taxes	81		370	Provision for income taxes
Reclassification adjustment, net of taxes	$	152	712

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RETIREMENT PLANS (Tables)

12 Months Ended

Dec. 31, 2017

Retirement Benefits [Abstract]

Summary of Costs of Retirement Plans

Funding and administrative costs of the qualified noncontributory defined benefit retirement plan and 401(k) plan charged to salaries and employee benefits in the consolidated statements of income for the years ended December 31 were as follows (in thousands):

	2017		2016	2015
Qualified noncontributory defined benefit retirement plan	$	1,054	969	984
401(k) plan	374		359	346

Components of Net Benefit Costs

The components of net periodic pension cost of the nonqualified defined benefit retirement plan for the years ended December 31 are summarized as follows (in thousands):

	2017		2016	2015
Service cost	$	—	41	38
Interest cost	69		78	68
Amortization of unrecognized (gain) loss	16		168	171
Net periodic pension cost	$	85	287	277

Reconciliation of Changes in Projected Benefit Obligations

A reconciliation of changes in the projected benefit obligation of the nonqualified defined benefit retirement plan at December 31 follows (in thousands):

	2017			2016		2015
Projected benefit obligation at beginning of year	$	1,727		1,843		1,741
Service cost	—			41		38
Interest cost	69			78		68
Actuarial (gain) or loss	238			(209	)	10
Benefits paid	(63		)	(26	)	(14	)
Projected benefit obligation at end of year	$	1,971		1,727		1,843

Amount Recognized in OCI

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

	2017		2016		2015
Net actuarial (gain)/loss	$	141	(16	)	233
Past service cost	—		—		—
	$	141	(16	)	233

Schedule of Key Assumptions Used

Key weighted-average assumptions used to determine the benefit obligation and net periodic pension costs for the nonqualified defined benefit retirement plan for the years ended December 31 were as follows:

	2017		2016		2015
Benefit obligation:
Discount rate	3.60	%	4.14	%	4.34	%
Salary increase rate	2.00	%	2.00	%	2.00	%
Net periodic pension cost:
Discount rate	4.14	%	4.34	%	3.95	%
Salary increase rate	2.00	%	2.00	%	2.00	%
Amortization period in years	1.00		1.00		1.98

Expected Benefit Payments

Estimated future benefit payments reflecting expected future service for the years ended after December 31, 2017 are (in thousands):

2018	$	130
2019	130
2020	130
2021	130
2022	130
2023-2027	633

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STOCK-BASED COMPENSATION (Tables)

12 Months Ended

Dec. 31, 2017

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

Stock Options, by Exercise Price Range

Stock options outstanding at December 31, 2017 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	4,356	$	9.00	1.1	4,356	$	9.00	1.1
$11.00 - 12.99	15,909	12.08		2.6	15,909	12.08		2.6
$17.00 - 18.99	—	—		0.0	—	—		0.0
	20,265	11.42		2.3	20,265	11.42		2.3

Summary of Stock Option Activity

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

	2017			2016				2015
	Options		Weighted Average Exercise Price	Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price
Outstanding at January 1,	24,669		12.17	83,861		$	12.39	99,810		$	12.16
Granted	—		—	—		—		—		—
Exercised	(3,398	)	14.94	(51,390	)	11.53		(13,449	)	11.31
Expired	(1,006	)	17.88	(7,802	)	18.76		(2,500	)	9.00
Outstanding at December 31,	20,265		11.42	24,669		12.17		83,861		12.39
Exercisable at December 31,	20,265		11.42	22,924		12.13		75,072		12.40

Schedule Of Information Related To Stock Options Exercised

The following table provides information related to stock options exercised during the years indicated (in thousands):

	2017		2016	2015
Intrinsic value of options exercised	$	25	288	67
Cash received from options exercised	51		592	152
Tax benefit realized from options exercised	5		59	13

Summary of Restricted Stock Awards Activity

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

	2017				2016				2015
	Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value		Shares	Weighted Average Grant Date Fair Value
Outstanding at January 1,	8,624		$	15.47	16,038		$	15.47	—	$	—
Granted	4,027		22.60		—		—		16,038	15.47
Vested	(3,834	)	16.73		(7,414	)	15.47		—	—
Forfeited	—		—		—		—		—	—
Outstanding at December 31,	8,817		$	16.44	8,624		$	15.47	16,038	$	15.47

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EARNINGS PER SHARE (Tables)

12 Months Ended

Dec. 31, 2017

Earnings Per Share [Abstract]

Computations of Earnings Per Share

Earnings per share for the years ended December 31 were calculated as follows (in thousands, except share and per share data):

	2017		2016	2015
Net income	$	12,972	12,482	11,474
Less allocation of earnings and dividends to participating securities	7		13	—
Net income allocated to common shareholders	12,965		12,469	11,474
Weighted average common shares outstanding, gross	10,011,358		9,958,300	9,704,965
Less average participating securities	5,783		10,243	—
Weighted average number of shares outstanding used in the calculation of basic earnings per common share	10,005,575		9,948,057	9,704,965
Add dilutive effect of:
Stock options	6,936		10,765	17,174
Stock warrants	—		17,548	89,328
Adjusted weighted average number of shares outstanding used in the calculation of diluted earnings per common share	10,012,511		9,976,370	9,811,467
Earnings per common share:
Basic	$	1.30	1.26	1.18
Diluted	1.29		1.25	1.17

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RELATED PARTY TRANSACTIONS (Tables)

12 Months Ended

Dec. 31, 2017

Related Party Transactions [Abstract]

Schedule of Related Party Transactions

The following table provides a summary of the loan activity for these officers and directors for the years ended December 31 (in thousands):

	2017			2016
Beginning balance	$	1,447		1,091
New loans and advances	669			64
Change in composition of related parties	—			506
Reductions	(246		)	(214	)
Ending Balance	$	1,870		1,447

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FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

12 Months Ended

Dec. 31, 2017

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 December 31 (in thousands):

				Fair Value Measurements at the End of the Reporting Period Using
		Fair Value Measurements		Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
December 31, 2017
Recurring fair value measurements:
Investment securities available-for-sale:
U.S. Treasury notes		$	2,259	2,259	—	—
U.S. Agency notes		83,261		—	83,261	—
U.S. Agency mortgage-backed securities		67,153		—	67,153	—
Municipal securities:
Non-taxable		102,174		—	102,174	—
Taxable		20,366		—	20,366	—
Mutual funds		1,023		23	1,000	—
Mutual funds measured at net asset value (a)		1,519
Trust preferred securities		50		50	—	—
Equity securities		667		667	—	—
Total recurring fair value measurements		$	278,472	2,999	273,954	—
Nonrecurring fair value measurements:
Impaired loans		$	3,359	—	—	3,359
December 31, 2016
Recurring fair value measurement:
Investment securities available-for-sale:
U.S. Treasury notes		$	28,145	28,145	—	—
U.S. Agency notes		85,400		—	85,400	—
U.S. Agency mortgage-backed securities		71,047		—	71,047	—
Municipal securities:
Non-taxable		113,015		—	113,015	—
Taxable		19,845		—	19,845	—
Mutual funds		1,000		—	1,000	—
Mutual funds measured at net asset value (a)		1,482
Trust preferred securities		48		48	—	—
Equity securities		677		677	—	—
Total recurring fair value measurements		$	320,659	28,870	290,307	—
Nonrecurring fair value measurements:
Impaired loans		$	5,340	—	—	5,340
(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 Balance Sheets.

Fair Value, 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 December 31, 2017 and 2016 (dollars in thousands):

					Range
	Fair Value		Valuation Technique	Unobservable Inputs	High		Low		Weighted Average
2017
Impaired loans	$	3,359	Estimated sales price	Adjustments for comparable properties, discounts to reflect current market conditions	Not applicable
			Discounted cash flows	Discount rate	8.25	%	3.25	%	6.27	%
2016
Impaired loans	$	5,340	Estimated sales price	Adjustments for comparable properties, discounts to reflect current market conditions	Not applicable
			Discounted cash flows	Discount rate	8.25	%	4.50	%	5.56	%

Carrying Amounts and Estimated Fair Values of Financial Instruments

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

				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)
2017
FINANCIAL ASSETS:
Cash and cash equivalents	$	25,386	25,386	25,386	—	—
Investment securities, held-to-maturity	32,571		32,350	—	—	32,350
Federal Reserve Bank stock	2,732		2,732	2,732	—	—
Federal Home Loan Bank stock	3,638		3,638	3,638	—	—
Loans, net	845,657		813,368	—	—	813,368
Accrued interest receivable	3,511		3,511	—	3,511	—
FINANCIAL LIABILITIES:
Deposits	1,085,821		1,087,086	894,046	193,040	—
Short-term borrowings	47,000		47,000	47,000	—	—
Long-term debt	303		307	—	307	—
Accrued interest payable	329		329	—	329	—
2016
FINANCIAL ASSETS:
Cash and cash equivalents	$	18,865	18,865	18,865	—	—
Investment securities, held-to-maturity	41,003		40,490	—	—	40,490
Federal Reserve Bank stock	2,732		2,732	2,732	—	—
Federal Home Loan Bank stock	3,638		3,638	3,638	—	—
Loans, net	816,228		799,791	—	—	799,791
Accrued interest receivable	3,559		3,559	—	3,559	—
FINANCIAL LIABILITIES:
Deposits	1,110,905		1,113,187	896,147	217,040	—
Short-term borrowings	42,040		42,040	42,040	—	—
Long-term debt	598		614	—	614	—
Accrued interest payable	307		307	—	307	—

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QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (Tables)

12 Months Ended

Dec. 31, 2017

Quarterly Financial Information Disclosure [Abstract]

Schedule of Quarterly Financial Information

The following table sets forth certain quarterly results for the years ended December 31, 2017 and 2016 (dollars in thousands, except per share data):

	Three Months Ended
	March 31		June 30	Sep. 30		Dec. 31
2017
Interest income	$	10,864	10,934	11,055		11,610
Interest expense	877		861	908		953
Net interest income	9,987		10,073	10,147		10,657
Provision for loan losses	15		222	(12	)	(10	)
Net interest income after provision	9,972		9,851	10,159		10,667
Total non-interest income	2,430		2,790	2,659		2,579
Total non-interest expenses	7,968		8,611	8,672		8,612
Income before income taxes	4,434		4,030	4,146		4,634
Provision for income taxes	1,188		1,027	1,040		1,017
Net income	$	3,246	3,003	3,106		3,617
Earnings per common share:
Basic	$	0.32	0.30	0.31		0.37
Diluted	0.32		0.30	0.31		0.36
2016
Interest income	$	10,621	11,008	10,895		11,226
Interest expense	849		883	885		887
Net interest income	9,772		10,125	10,010		10,339
Provision for loan losses	90		396	372		55
Net interest income after provision	9,682		9,729	9,638		10,284
Total non-interest income	2,642		2,750	2,846		2,615
Total non-interest expenses	8,292		8,468	8,593		7,908
Income before income taxes	4,032		4,011	3,891		4,991
Provision for income taxes	1,068		1,043	995		1,337
Net income	$	2,964	2,968	2,896		3,654
Earnings per common share:
Basic	$	0.30	0.30	0.29		0.37
Diluted	0.30		0.29	0.29		0.37

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PARENT COMPANY FINANCIAL INFORMATION (Tables)

12 Months Ended

Dec. 31, 2017

Condensed Financial Information of Parent Company Only Disclosure [Abstract]

Condensed Balance Sheets

Condensed financial information for LCNB Corp., parent company only, follows (in thousands):

Condensed Balance Sheets:
December 31,	2017		2016
Assets:
Cash on deposit with subsidiary	$	308	491
Investment securities available-for-sale, at fair value	919		893
Investment in subsidiaries	148,850		141,325
Other assets	194		235
Total assets	$	150,271	142,944
Liabilities	$	—	—
Shareholders' equity	150,271		142,944
Total liabilities and shareholders' equity	$	150,271	142,944

Condensed Statements of Income

Condensed Statements of Income
Year ended December 31,	2017		2016	2015
Income:
Dividends from subsidiaries	$	6,800	7,300	5,400
Interest and dividends	36		38	58
Net gain on sales of securities	14		8	254
Total income	6,850		7,346	5,712
Total expenses	1,290		1,014	1,016
Income before income tax expense/benefit and equity in undistributed income of subsidiaries	5,560		6,332	4,696
Income tax benefit	380		336	250
Equity in undistributed income of subsidiaries	7,032		5,814	6,528
Net income	$	12,972	12,482	11,474

Condensed Statements of Cash Flows

Condensed Statements of Cash Flows
Year ended December 31,	2017			2016		2015
Cash flows from operating activities:
Net income	$	12,972		12,482		11,474
Adjustments for non-cash items -
Increase in undistributed income of subsidiaries	(7,032		)	(5,814	)	(6,528	)
Other, net	84			126		42
Net cash flows provided by operating activities	6,024			6,794		4,988
Cash flows from investing activities:
Purchases of securities available-for-sale	(54		)	(177	)	(215	)
Proceeds from maturities of securities available-for-sale	50			55		—
Proceeds from sales of available-for-sale securities	43			173		1,217
Investments in subsidiaries	(250		)	—		—
Cash paid for business acquisition	—			—		(3,757	)
Net cash flows provided by (used in) investing activities	(211		)	51		(2,755	)
Cash flows from financing activities:
Proceeds from issuance of common stock	360			379		390
Repurchase of stock warrants	—			(1,545	)	—
Cash dividends paid on common stock	(6,407		)	(6,375	)	(6,239	)
Other	51			653		165
Net cash flows used in financing activities	(5,996		)	(6,888	)	(5,684	)
Net change in cash	(183		)	(43	)	(3,451	)
Cash at beginning of year	491			534		3,985
Cash at end of year	$	308		491		534

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details)	12 Months Ended
	Dec. 31, 2017
CASH AND CASH EQUIVALENTS
Short term investment maturity period	12 months
ALLOWANCE FOR LOAN LOSSES
Minimum period due consumer loan	120 days
Period for measurement of loan component	60 months
Historical loss period	5 years
STOCK OPTIONS
Option vesting period	5 years
Premises | Minimum
Property, Plant and Equipment [Line Items]
Estimated useful life	15 years
Premises | Maximum
Property, Plant and Equipment [Line Items]
Estimated useful life	40 years
Equipment | Minimum
Property, Plant and Equipment [Line Items]
Estimated useful life	3 years
Equipment | Maximum
Property, Plant and Equipment [Line Items]
Estimated useful life	10 years

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Recent Accounting Pronouncements (Details) - Forecast - USD ($)	3 Months Ended
	Mar. 31, 2018	Dec. 31, 2018
ASU 2016-02
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Right-of-use asset		$ 5,000,000
Lease liability		$ 5,000,000
Accounting Standards Update 2018-02 [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Reclassification Of Stranded Tax Effect From Accumulated Other Comprehensive Income to Retained Earnings	$ 486,000

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ACQUISITION (Details) $ / shares in Units, $ in Thousands	3 Months Ended
	Jun. 30, 2018 USD ($)	Feb. 28, 2018 $ / shares shares	Dec. 31, 2017 USD ($)	Dec. 31, 2016 USD ($)
Business Acquisition, Equity Interests Issued or Issuable [Line Items]
Assets			$ 1,295,638	$ 1,306,799
Interest-bearing deposits			4,227	487
Liabilities			1,145,367	1,163,855
Deposits			$ 1,085,821	$ 1,110,905
Columbus First Bancorp, Inc.
Business Acquisition, Equity Interests Issued or Issuable [Line Items]
Exchange ratio per share			2
Assets			$ 330,400
Loans receivable, net			279,700
Interest-bearing deposits			36,500
Liabilities			297,700
Deposits			$ 259,300
Subsequent Event
Business Acquisition, Equity Interests Issued or Issuable [Line Items]
Share price (usd per share) | $ / shares		$ 18.50
Subsequent Event | Columbus First Bancorp, Inc.
Business Acquisition, Equity Interests Issued or Issuable [Line Items]
Business combination, equivalent per share value, common stock of acquiree (usd per share) | $ / shares		$ 37.00
Business combination consideration transferred	$ 58,800
Common stock, shares, outstanding (in shares) | shares		1,589,516
Options, outstanding (in shares) | shares		65,724
Exercisable at end of period (in dollars per share) | $ / shares		$ 14.06

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INVESTMENT SECURITIES, AMORTIZED COST AND FAIR VALUE (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Investment Securities Available-for-Sale:
Amortized Cost	$ 281,838	$ 324,662
Unrealized Gains	708	1,129
Unrealized Losses	4,074	5,132
Fair Value	278,472	320,659
Investment Securities Held-to-Maturity:
Amortized Cost	32,571	41,003
Unrealized Gains	101	56
Unrealized Losses	322	569
Fair Value	32,350	40,490
U.S. Treasury notes
Investment Securities Available-for-Sale:
Amortized Cost	2,283	28,180
Unrealized Gains	0	41
Unrealized Losses	24	76
Fair Value	2,259	28,145
U.S. Agency notes
Investment Securities Available-for-Sale:
Amortized Cost	84,837	87,098
Unrealized Gains	57	150
Unrealized Losses	1,633	1,848
Fair Value	83,261	85,400
U.S. Agency mortgage-backed securities
Investment Securities Available-for-Sale:
Amortized Cost	68,347	72,402
Unrealized Gains	33	89
Unrealized Losses	1,227	1,444
Fair Value	67,153	71,047
Investment Securities Held-to-Maturity:
Amortized Cost	0
Fair Value	0
Non-taxable municipal securities
Investment Securities Available-for-Sale:
Amortized Cost	102,849	114,064
Unrealized Gains	343	574
Unrealized Losses	1,018	1,623
Fair Value	102,174	113,015
Investment Securities Held-to-Maturity:
Amortized Cost	28,871	31,015
Unrealized Gains	101	56
Unrealized Losses	227	352
Fair Value	28,745	30,719
Taxable municipal securities
Investment Securities Available-for-Sale:
Amortized Cost	20,313	19,710
Unrealized Gains	175	220
Unrealized Losses	122	85
Fair Value	20,366	19,845
Investment Securities Held-to-Maturity:
Amortized Cost	3,700	9,988
Unrealized Gains	0	0
Unrealized Losses	95	217
Fair Value	3,605	9,771
Mutual funds
Investment Securities Available-for-Sale:
Amortized Cost	2,586	2,527
Unrealized Gains	2	0
Unrealized Losses	46	45
Fair Value	2,542	2,482
Investment Securities Held-to-Maturity:
Amortized Cost	0
Fair Value	0
Trust preferred securities
Investment Securities Available-for-Sale:
Amortized Cost	49	49
Unrealized Gains	1	0
Unrealized Losses	0	1
Fair Value	50	48
Investment Securities Held-to-Maturity:
Amortized Cost	0
Fair Value	0
Equity securities
Investment Securities Available-for-Sale:
Amortized Cost	574	632
Unrealized Gains	97	55
Unrealized Losses	4	10
Fair Value	667	$ 677
Investment Securities Held-to-Maturity:
Amortized Cost	0
Fair Value	$ 0

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INVESTMENT SECURITIES, CONTINUOUS UNREALIZED LOSS POSITION (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Investment Securities Available-for-Sale:
Less Than 12 Months, Fair Value	$ 107,878	$ 234,467
Less Than 12 Months, Unrealized Losses	941	4,985
12 Months or More, Fair Value	112,405	4,696
12 Months or More, Unrealized Losses	3,133	147
Investment Securities Held-to-Maturity:
Less Than 12 Months, Fair Value	9,824	28,459
Less Than 12 Months, Unrealized Losses	133	468
12 Months or More, Fair Value	6,747	2,564
12 Months or More, Unrealized Losses	189	101
U.S. Treasury notes
Investment Securities Available-for-Sale:
Less Than 12 Months, Fair Value	2,259	16,076
Less Than 12 Months, Unrealized Losses	24	76
12 Months or More, Fair Value	0	0
12 Months or More, Unrealized Losses	0	0
U.S. Agency notes
Investment Securities Available-for-Sale:
Less Than 12 Months, Fair Value	33,651	69,784
Less Than 12 Months, Unrealized Losses	344	1,848
12 Months or More, Fair Value	44,560	0
12 Months or More, Unrealized Losses	1,289	0
U.S. Agency mortgage-backed securities
Investment Securities Available-for-Sale:
Less Than 12 Months, Fair Value	24,433	64,564
Less Than 12 Months, Unrealized Losses	142	1,310
12 Months or More, Fair Value	41,080	3,518
12 Months or More, Unrealized Losses	1,085	134
Non-taxable Municipal Securities
Investment Securities Available-for-Sale:
Less Than 12 Months, Fair Value	36,348	72,867
Less Than 12 Months, Unrealized Losses	315	1,621
12 Months or More, Fair Value	24,197	451
12 Months or More, Unrealized Losses	703	2
Investment Securities Held-to-Maturity:
Less Than 12 Months, Fair Value	9,824	20,429
Less Than 12 Months, Unrealized Losses	133	251
12 Months or More, Fair Value	3,542	2,564
12 Months or More, Unrealized Losses	94	101
Taxable Municipal Securities
Investment Securities Available-for-Sale:
Less Than 12 Months, Fair Value	11,068	9,721
Less Than 12 Months, Unrealized Losses	114	82
12 Months or More, Fair Value	1,032	450
12 Months or More, Unrealized Losses	8	3
Investment Securities Held-to-Maturity:
Less Than 12 Months, Fair Value	0	8,030
Less Than 12 Months, Unrealized Losses	0	217
12 Months or More, Fair Value	3,205	0
12 Months or More, Unrealized Losses	95	0
Mutual funds
Investment Securities Available-for-Sale:
Less Than 12 Months, Fair Value	0	1,205
Less Than 12 Months, Unrealized Losses	0	37
12 Months or More, Fair Value	1,519	277
12 Months or More, Unrealized Losses	46	8
Trust preferred securities
Investment Securities Available-for-Sale:
Less Than 12 Months, Fair Value	0	49
Less Than 12 Months, Unrealized Losses	0	1
12 Months or More, Fair Value	0	0
12 Months or More, Unrealized Losses	0	0
Equity securities
Investment Securities Available-for-Sale:
Less Than 12 Months, Fair Value	119	201
Less Than 12 Months, Unrealized Losses	2	10
12 Months or More, Fair Value	17	0
12 Months or More, Unrealized Losses	$ 2	$ 0

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INVESTMENT SECURITIES, MATURITIES (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Available for Sale, Amortized Cost [Abstract]
Due within one year	$ 11,222
Due from one to five years	92,900
Due from five to ten years	102,520
Due after ten years	3,640
Available-for-Sale, Amortized Cost	210,282
Amortized Cost	281,838	$ 324,662
Available-for-sale, Fair Value [Abstract]
Due within one year	11,267
Due from one to five years	92,453
Due from five to ten years	100,836
Due after ten years	3,504
Available-for-sale, at Fair Value	208,060
Available-for-sale, at fair value	278,472	320,659
Held-to-maturity Securities, Amortized Cost [Abstract]
Due within one year	4,043
Due from one to five years	4,128
Due from five to ten years	8,415
Due after ten years	15,985
Amortized Cost	32,571	41,003
Held-to-maturity Securities, Fair Value [Abstract]
Due within one year	4,047
Due from one to five years	4,045
Due from five to ten years	8,286
Due after ten years	15,972
Fair Value	32,350	40,490
U.S. Agency mortgage-backed securities
Available for Sale, Amortized Cost [Abstract]
Amortized Cost	68,347	72,402
Available-for-sale, Fair Value [Abstract]
Available-for-sale, at fair value	67,153	71,047
Held-to-maturity Securities, Amortized Cost [Abstract]
Amortized Cost	0
Held-to-maturity Securities, Fair Value [Abstract]
Fair Value	0
Mutual funds
Available for Sale, Amortized Cost [Abstract]
Amortized Cost	2,586	2,527
Available-for-sale, Fair Value [Abstract]
Available-for-sale, at fair value	2,542	2,482
Held-to-maturity Securities, Amortized Cost [Abstract]
Amortized Cost	0
Held-to-maturity Securities, Fair Value [Abstract]
Fair Value	0
Trust preferred securities
Available for Sale, Amortized Cost [Abstract]
Amortized Cost	49	49
Available-for-sale, Fair Value [Abstract]
Available-for-sale, at fair value	50	48
Held-to-maturity Securities, Amortized Cost [Abstract]
Amortized Cost	0
Held-to-maturity Securities, Fair Value [Abstract]
Fair Value	0
Equity securities
Available for Sale, Amortized Cost [Abstract]
Amortized Cost	574	632
Available-for-sale, Fair Value [Abstract]
Available-for-sale, at fair value	667	$ 677
Held-to-maturity Securities, Amortized Cost [Abstract]
Amortized Cost	0
Held-to-maturity Securities, Fair Value [Abstract]
Fair Value	$ 0

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INVESTMENT SECURITIES, NARRATIVE (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Investments, Debt and Equity Securities [Abstract]
Investment securities pledged as collateral	$ 108,751	$ 149,990

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INVESTMENT SECURITIES, SALE (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Investments, Debt and Equity Securities [Abstract]
Proceeds from sales of investment securities available-for-sale	$ 43,246	$ 92,455	$ 97,981
Gross realized gains	247	1,103	627
Gross realized losses	$ 14	$ 21	$ 132

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LOANS, MAJOR CLASSIFICATION OF LOANS (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total gross loans, including deferred net origination cost	$ 848,769	$ 819,549
Deferred origination costs, net	291	254
Total loans	849,060	819,803
Less allowance for loan losses	3,403	3,575
Loans, net	845,657	816,228
Commercial & industrial
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total gross loans, including deferred net origination cost	36,057	41,878
Total loans	36,103	41,901
Commercial, secured by real estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total gross loans, including deferred net origination cost	527,947	477,275
Total loans	527,596	476,944
Residential real estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total gross loans, including deferred net origination cost	251,582	265,788
Total loans	252,049	266,255
Consumer
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total gross loans, including deferred net origination cost	17,450	19,173
Total loans	17,563	19,261
Agricultural
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total gross loans, including deferred net origination cost	15,194	14,802
Total loans	15,210	14,809
Other loans, including deposit overdrafts
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total gross loans, including deferred net origination cost	539	633
Total loans	$ 539	$ 633

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LOANS, ACQUIRED LOANS ACQUIRED IN ACCORDANCE WITH FASB 310-30 (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Business Acquisition [Line Items]
Interest component of expected cash flows (accretable discount)	$ (669)	$ (1,080)	$ (1,503)

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LOANS, PAST-DUE, AND ACCRUING RESTRUCTURED LOANS (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Financing receivables, non-accruals, past-due, and accruing restructured loans [Line Items]
Total non-accrual loans	$ 2,965	$ 5,725
Past-due 90 days or more and still accruing	0	23
Total non-accrual and past-due 90 days or more and still accruing	2,965	5,748
Accruing restructured loans	10,469	11,731
Total	$ 13,434	$ 17,479
Percentage of total non-accrual and past-due 90 days or more and still accruing to total loans	0.35%	0.70%
Percentage of total non-accrual, past-due 90 days or more and still accruing, and accruing restructured loans to total loans	1.58%	2.13%
Interest income	$ 202	$ 220
Commercial & industrial
Financing receivables, non-accruals, past-due, and accruing restructured loans [Line Items]
Total non-accrual loans	0	0
Past-due 90 days or more and still accruing	0	0
Commercial, secured by real estate
Financing receivables, non-accruals, past-due, and accruing restructured loans [Line Items]
Total non-accrual loans	2,183	4,312
Past-due 90 days or more and still accruing	0	0
Agricultural
Financing receivables, non-accruals, past-due, and accruing restructured loans [Line Items]
Total non-accrual loans	178	334
Past-due 90 days or more and still accruing	0	0
Residential real estate
Financing receivables, non-accruals, past-due, and accruing restructured loans [Line Items]
Total non-accrual loans	604	1,079
Past-due 90 days or more and still accruing	$ 0	$ 20

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LOANS, ALLOWANCES FOR CREDIT LOSSES (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Allowance for loan losses:
Balance, beginning of year	$ 3,575	$ 3,129	$ 3,121
Provision charged to expenses	215	913	1,366
Losses charged off	(915)	(750)	(1,730)
Recoveries	528	283	372
Balance, end of year	3,403	3,575	3,129
Individually evaluated for impairment				$ 191	$ 177	$ 363
Collectively evaluated for impairment				3,212	3,106	2,766
Acquired credit impaired loans				0	292
Balance, end of year	3,575	3,129	3,121	3,403	3,575	3,129
Loans:
Individually evaluated for impairment				13,167	14,821
Collectively evaluated for impairment				828,411	795,636
Acquired credit impaired loans				7,482	9,346
Total loans				849,060	819,803
Commercial & industrial
Allowance for loan losses:
Balance, beginning of year	350	244	129
Provision charged to expenses	(71)	314	208
Losses charged off	0	(234)	(100)
Recoveries	99	26	7
Balance, end of year	378	350	244
Individually evaluated for impairment				8	9	9
Collectively evaluated for impairment				370	341	235
Acquired credit impaired loans				0	0
Balance, end of year	350	244	129	378	350	244
Loans:
Individually evaluated for impairment				303	337
Collectively evaluated for impairment				34,792	41,466
Total loans				36,103	41,901
Commercial, secured by real estate
Allowance for loan losses:
Balance, beginning of year	2,179	1,908	1,990
Provision charged to expenses	348	358	955
Losses charged off	(462)	(185)	(1,133)
Recoveries	113	98	96
Balance, end of year	2,178	2,179	1,908
Individually evaluated for impairment				146	55	306
Collectively evaluated for impairment				2,032	1,832	1,602
Acquired credit impaired loans				0	292
Balance, end of year	2,179	1,908	1,990	2,178	2,179	1,908
Loans:
Individually evaluated for impairment				11,289	12,580
Collectively evaluated for impairment				512,259	458,059
Total loans				527,596	476,944
Residential real estate
Allowance for loan losses:
Balance, beginning of year	885	854	926
Provision charged to expenses	(83)	106	125
Losses charged off	(225)	(127)	(304)
Recoveries	140	52	107
Balance, end of year	717	885	854
Individually evaluated for impairment				29	100	48
Collectively evaluated for impairment				688	785	806
Acquired credit impaired loans				0	0
Balance, end of year	885	854	926	717	885	854
Loans:
Individually evaluated for impairment				1,351	1,518
Collectively evaluated for impairment				248,674	262,266
Total loans				252,049	266,255
Consumer
Allowance for loan losses:
Balance, beginning of year	96	54	63
Provision charged to expenses	(44)	74	(17)
Losses charged off	(90)	(85)	(52)
Recoveries	114	53	60
Balance, end of year	76	96	54
Individually evaluated for impairment				8	13	0
Collectively evaluated for impairment				68	83	54
Acquired credit impaired loans				0	0
Balance, end of year	96	54	63	76	96	54
Loans:
Individually evaluated for impairment				47	52
Collectively evaluated for impairment				17,516	19,192
Total loans				17,563	19,261
Agricultural
Allowance for loan losses:
Balance, beginning of year	60	66	11
Provision charged to expenses	(7)	(6)	55
Losses charged off	0	0	(67)
Recoveries	0	0	67
Balance, end of year	53	60	66
Individually evaluated for impairment				0	0	0
Collectively evaluated for impairment				53	60	66
Acquired credit impaired loans				0	0
Balance, end of year	60	66	11	53	60	66
Loans:
Individually evaluated for impairment				177	334
Collectively evaluated for impairment				15,033	14,475
Total loans				15,210	14,809
Other
Allowance for loan losses:
Balance, beginning of year	5	3	2
Provision charged to expenses	72	67	40
Losses charged off	(138)	(119)	(74)
Recoveries	62	54	35
Balance, end of year	1	5	3
Individually evaluated for impairment				0	0	0
Collectively evaluated for impairment				1	5	3
Acquired credit impaired loans				0	0
Balance, end of year	$ 5	$ 3	$ 2	1	5	3
Loans:
Individually evaluated for impairment				0	0
Collectively evaluated for impairment				137	178
Total loans				539	633
Financial Receivable Acquired Credit Impaired
Loans:
Acquired credit impaired loans				7,482	9,346	$ 0
Financial Receivable Acquired Credit Impaired | Commercial & industrial
Loans:
Acquired credit impaired loans				1,008	98
Financial Receivable Acquired Credit Impaired | Commercial, secured by real estate
Loans:
Acquired credit impaired loans				4,048	6,305
Financial Receivable Acquired Credit Impaired | Residential real estate
Loans:
Acquired credit impaired loans				2,024	2,471
Financial Receivable Acquired Credit Impaired | Consumer
Loans:
Acquired credit impaired loans				0	17
Financial Receivable Acquired Credit Impaired | Agricultural
Loans:
Acquired credit impaired loans				0	0
Financial Receivable Acquired Credit Impaired | Other
Loans:
Acquired credit impaired loans				$ 402	$ 455

XML

LOANS, ADDITIONAL INFORMATION (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Accounts, Notes, Loans and Financing Receivable [Line Items]
Interest income	$ 202	$ 220
Commercial & industrial | Minimum
Accounts, Notes, Loans and Financing Receivable [Line Items]
Adjustable interest rate periods of loan products	1 month
Commercial & industrial | Maximum
Accounts, Notes, Loans and Financing Receivable [Line Items]
Adjustable interest rate periods of loan products	5 years
Commercial, secured by real estate | Minimum
Accounts, Notes, Loans and Financing Receivable [Line Items]
Amortization period of loan products	5 years
Balloon payment terms of loan products	1 year
Adjustable interest rate periods of loan products	1 year
Loan to appraised value ratio of loan products	75.00%
Commercial, secured by real estate | Maximum
Accounts, Notes, Loans and Financing Receivable [Line Items]
Amortization period of loan products	25 years
Balloon payment terms of loan products	10 years
Adjustable interest rate periods of loan products	10 years
Loan to appraised value ratio of loan products	80.00%
Residential real estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Home equity lines of credit draw period of residential real estate loans	5 years
Residential real estate | Minimum
Accounts, Notes, Loans and Financing Receivable [Line Items]
Amortization period of loan products	5 years
Adjustable interest rate periods of loan products	1 year
Loan to appraised value ratio of loan products	80.00%
Residential real estate | Maximum
Accounts, Notes, Loans and Financing Receivable [Line Items]
Amortization period of loan products	30 years
Adjustable interest rate periods of loan products	10 years
Consumer | Maximum
Accounts, Notes, Loans and Financing Receivable [Line Items]
Amortization period of loan products	72 months

XML

LOANS, LOANS PORTFOLIO BY CREDIT QUALITY INDICATORS (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Financing Receivable, Recorded Investment [Line Items]
Total loans	$ 849,060	$ 819,803
Pass
Financing Receivable, Recorded Investment [Line Items]
Total loans	824,849	779,924
OAEM
Financing Receivable, Recorded Investment [Line Items]
Total loans	2,356	6,225
Substandard
Financing Receivable, Recorded Investment [Line Items]
Total loans	21,855	33,654
Doubtful
Financing Receivable, Recorded Investment [Line Items]
Total loans	0	0
Commercial & industrial
Financing Receivable, Recorded Investment [Line Items]
Total loans	36,103	41,901
Commercial & industrial | Pass
Financing Receivable, Recorded Investment [Line Items]
Total loans	35,683	41,178
Commercial & industrial | OAEM
Financing Receivable, Recorded Investment [Line Items]
Total loans	176	304
Commercial & industrial | Substandard
Financing Receivable, Recorded Investment [Line Items]
Total loans	244	419
Commercial & industrial | Doubtful
Financing Receivable, Recorded Investment [Line Items]
Total loans	0	0
Commercial, secured by real estate
Financing Receivable, Recorded Investment [Line Items]
Total loans	527,596	476,944
Commercial, secured by real estate | Pass
Financing Receivable, Recorded Investment [Line Items]
Total loans	506,833	443,781
Commercial, secured by real estate | OAEM
Financing Receivable, Recorded Investment [Line Items]
Total loans	2,180	5,479
Commercial, secured by real estate | Substandard
Financing Receivable, Recorded Investment [Line Items]
Total loans	18,583	27,684
Commercial, secured by real estate | Doubtful
Financing Receivable, Recorded Investment [Line Items]
Total loans	0	0
Residential real estate
Financing Receivable, Recorded Investment [Line Items]
Total loans	252,049	266,255
Residential real estate | Pass
Financing Receivable, Recorded Investment [Line Items]
Total loans	250,039	261,839
Residential real estate | OAEM
Financing Receivable, Recorded Investment [Line Items]
Total loans	0	442
Residential real estate | Substandard
Financing Receivable, Recorded Investment [Line Items]
Total loans	2,010	3,974
Residential real estate | Doubtful
Financing Receivable, Recorded Investment [Line Items]
Total loans	0	0
Consumer
Financing Receivable, Recorded Investment [Line Items]
Total loans	17,563	19,261
Consumer | Pass
Financing Receivable, Recorded Investment [Line Items]
Total loans	17,522	19,182
Consumer | OAEM
Financing Receivable, Recorded Investment [Line Items]
Total loans	0	0
Consumer | Substandard
Financing Receivable, Recorded Investment [Line Items]
Total loans	41	79
Consumer | Doubtful
Financing Receivable, Recorded Investment [Line Items]
Total loans	0	0
Agricultural
Financing Receivable, Recorded Investment [Line Items]
Total loans	15,210	14,809
Agricultural | Pass
Financing Receivable, Recorded Investment [Line Items]
Total loans	14,233	13,311
Agricultural | OAEM
Financing Receivable, Recorded Investment [Line Items]
Total loans	0	0
Agricultural | Substandard
Financing Receivable, Recorded Investment [Line Items]
Total loans	977	1,498
Agricultural | Doubtful
Financing Receivable, Recorded Investment [Line Items]
Total loans	0	0
Other
Financing Receivable, Recorded Investment [Line Items]
Total loans	539	633
Other | Pass
Financing Receivable, Recorded Investment [Line Items]
Total loans	539	633
Other | OAEM
Financing Receivable, Recorded Investment [Line Items]
Total loans	0	0
Other | Substandard
Financing Receivable, Recorded Investment [Line Items]
Total loans	0	0
Other | Doubtful
Financing Receivable, Recorded Investment [Line Items]
Total loans	$ 0	$ 0

XML

LOANS, LOANS PORTFOLIO AGING ANALYSIS (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	$ 2,005	$ 2,125
Current	847,055	817,678
Total loans	849,060	819,803
Total Loans Greater Than 90 Days and Accruing	0	23
Commercial & industrial
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	19
Current	36,103	41,882
Total loans	36,103	41,901
Total Loans Greater Than 90 Days and Accruing	0	0
Commercial, secured by real estate
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	722	295
Current	526,874	476,649
Total loans	527,596	476,944
Total Loans Greater Than 90 Days and Accruing	0	0
Residential real estate
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	993	1,493
Current	251,056	264,762
Total loans	252,049	266,255
Total Loans Greater Than 90 Days and Accruing	0	20
Consumer
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	31	78
Current	17,532	19,183
Total loans	17,563	19,261
Total Loans Greater Than 90 Days and Accruing	0	3
Agricultural
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	177	125
Current	15,033	14,684
Total loans	15,210	14,809
Total Loans Greater Than 90 Days and Accruing	0	0
Other
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	82	115
Current	457	518
Total loans	539	633
Total Loans Greater Than 90 Days and Accruing	0	0
30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	597	1,103
30-59 Days Past Due | Commercial & industrial
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	19
30-59 Days Past Due | Commercial, secured by real estate
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	124	99
30-59 Days Past Due | Residential real estate
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	362	686
30-59 Days Past Due | Consumer
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	29	59
30-59 Days Past Due | Agricultural
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	125
30-59 Days Past Due | Other
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	82	115
60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	137	165
60-89 Days Past Due | Commercial & industrial
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
60-89 Days Past Due | Commercial, secured by real estate
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	69
60-89 Days Past Due | Residential real estate
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	135	80
60-89 Days Past Due | Consumer
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	2	16
60-89 Days Past Due | Agricultural
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
60-89 Days Past Due | Other
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Greater Than 90 Days
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	1,271	857
Greater Than 90 Days | Commercial & industrial
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Greater Than 90 Days | Commercial, secured by real estate
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	598	127
Greater Than 90 Days | Residential real estate
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	496	727
Greater Than 90 Days | Consumer
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	3
Greater Than 90 Days | Agricultural
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	177	0
Greater Than 90 Days | Other
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	$ 0	$ 0

XML

LOANS, IMPAIRED LOANS (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
With no related allowance recorded [Abstract]
Recorded Investment	$ 17,099	$ 18,357
Unpaid Principal Balance	18,961	21,061
Average Recorded Investment	18,744	20,918	$ 24,831
Interest Income Recognized	1,771	1,902	3,482
With an allowance recorded [Abstract]
Recorded Investment	3,550	5,810
Unpaid Principal Balance	3,574	6,066
Related Allowance	191	469
Average Recorded Investment	3,689	5,229	5,241
Interest Income Recognized	85	315	172
Total [Abstract]
Recorded Investment	20,649	24,167
Unpaid Principal Balance	22,535	27,127
Average Recorded Investment	22,433	26,147	30,072
Interest Income Recognized	1,856	2,217	3,654
Interest income recognized on a cash basis	28	51	96
Commercial & industrial
With no related allowance recorded [Abstract]
Recorded Investment	1,015	109
Unpaid Principal Balance	1,100	263
Average Recorded Investment	685	998	1,467
Interest Income Recognized	88	151	206
With an allowance recorded [Abstract]
Recorded Investment	296	326
Unpaid Principal Balance	301	326
Related Allowance	8	9
Average Recorded Investment	311	341	370
Interest Income Recognized	18	19	21
Total [Abstract]
Recorded Investment	1,311	435
Unpaid Principal Balance	1,401	589
Average Recorded Investment	996	1,339	1,837
Interest Income Recognized	106	170	227
Commercial, secured by real estate
With no related allowance recorded [Abstract]
Recorded Investment	12,677	14,195
Unpaid Principal Balance	13,608	15,522
Average Recorded Investment	14,113	15,274	18,575
Interest Income Recognized	1,068	1,140	2,229
With an allowance recorded [Abstract]
Recorded Investment	2,660	4,690
Unpaid Principal Balance	2,660	4,946
Related Allowance	146	347
Average Recorded Investment	2,739	4,194	4,007
Interest Income Recognized	45	257	114
Total [Abstract]
Recorded Investment	15,337	18,885
Unpaid Principal Balance	16,268	20,468
Average Recorded Investment	16,852	19,468	22,582
Interest Income Recognized	1,113	1,397	2,343
Residential real estate
With no related allowance recorded [Abstract]
Recorded Investment	2,822	3,238
Unpaid Principal Balance	3,516	4,286
Average Recorded Investment	3,216	3,736	4,092
Interest Income Recognized	546	369	453
With an allowance recorded [Abstract]
Recorded Investment	553	751
Unpaid Principal Balance	572	751
Related Allowance	29	100
Average Recorded Investment	596	651	864
Interest Income Recognized	19	36	37
Total [Abstract]
Recorded Investment	3,375	3,989
Unpaid Principal Balance	4,088	5,037
Average Recorded Investment	3,812	4,387	4,956
Interest Income Recognized	565	405	490
Consumer
With no related allowance recorded [Abstract]
Recorded Investment	6	26
Unpaid Principal Balance	6	27
Average Recorded Investment	20	37	106
Interest Income Recognized	2	29	25
With an allowance recorded [Abstract]
Recorded Investment	41	43
Unpaid Principal Balance	41	43
Related Allowance	8	13
Average Recorded Investment	43	43	0
Interest Income Recognized	3	3	0
Total [Abstract]
Recorded Investment	47	69
Unpaid Principal Balance	47	70
Average Recorded Investment	63	80	106
Interest Income Recognized	5	32	25
Agricultural
With no related allowance recorded [Abstract]
Recorded Investment	177	334
Unpaid Principal Balance	177	334
Average Recorded Investment	269	392	81
Interest Income Recognized	12	136	487
With an allowance recorded [Abstract]
Recorded Investment	0	0
Unpaid Principal Balance	0	0
Related Allowance	0	0
Average Recorded Investment	0	0	0
Interest Income Recognized	0	0	0
Total [Abstract]
Recorded Investment	177	334
Unpaid Principal Balance	177	334
Average Recorded Investment	269	392	81
Interest Income Recognized	12	136	487
Other
With no related allowance recorded [Abstract]
Recorded Investment	402	455
Unpaid Principal Balance	554	629
Average Recorded Investment	441	481
Interest Income Recognized	55	77
With an allowance recorded [Abstract]
Recorded Investment	0	0
Unpaid Principal Balance	0	0
Related Allowance	0	0
Average Recorded Investment	0	0
Interest Income Recognized	0	0
Total [Abstract]
Recorded Investment	402	455
Unpaid Principal Balance	554	629
Average Recorded Investment	441	481	510
Interest Income Recognized	$ 55	$ 77	$ 82

XML

LOANS, TROUBLED DEBT RESTRUCTURING (Details)	12 Months Ended
	Dec. 31, 2017 USD ($) Loan	Dec. 31, 2016 USD ($) Loan	Dec. 31, 2015 USD ($) Loan
Loan modifications classified as troubled debt restructurings [Abstract]
Number of Loans (in loan) | Loan	2	13	10
Pre-Modification Recorded Balance	$ 32,000	$ 2,320,000	$ 301,000
Post-Modification Recorded Balance	23,000	2,393,000	304,000
Loans modified that subsequently defaulted	1,236,000	0	0
Modified impaired loans without a valuation allowance	21,000	881,000
Modified impaired loans with valuation allowance	0	1,168,000
Federal Home Loan Mortgage Corporation and Other Investors
Loan modifications classified as troubled debt restructurings [Abstract]
Unpaid principal balances of loans sold and serviced for the Federal Home Loan Mortgage Corporation	$ 92,818,000	$ 100,982,000	$ 111,837,000
Commercial & industrial
Loan modifications classified as troubled debt restructurings [Abstract]
Number of Loans (in loan) | Loan	0	0	0
Pre-Modification Recorded Balance	$ 0	$ 0	$ 0
Post-Modification Recorded Balance	$ 0	$ 0	$ 0
Commercial, secured by real estate
Loan modifications classified as troubled debt restructurings [Abstract]
Number of Loans (in loan) | Loan	0	4	1
Pre-Modification Recorded Balance	$ 0	$ 2,142,000	$ 75,000
Post-Modification Recorded Balance	$ 0	$ 2,215,000	$ 74,000
Residential real estate
Loan modifications classified as troubled debt restructurings [Abstract]
Number of Loans (in loan) | Loan	1	6	7
Pre-Modification Recorded Balance	$ 18,000	$ 139,000	$ 217,000
Post-Modification Recorded Balance	$ 9,000	$ 139,000	$ 221,000
Consumer
Loan modifications classified as troubled debt restructurings [Abstract]
Number of Loans (in loan) | Loan	1	3	2
Pre-Modification Recorded Balance	$ 14,000	$ 39,000	$ 9,000
Post-Modification Recorded Balance	$ 14,000	$ 39,000	$ 9,000

XML

LOANS, TROUBLED DEBT RESTRUCTURINGS, MODIFICATION TYPE (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Financing Receivable, Modifications [Line Items]
Post-Modification Recorded Balance	$ 23	$ 2,393	$ 304
Commercial & industrial
Financing Receivable, Modifications [Line Items]
Post-Modification Recorded Balance	0	0	0
Commercial, secured by real estate
Financing Receivable, Modifications [Line Items]
Post-Modification Recorded Balance	0	2,215	74
Residential real estate
Financing Receivable, Modifications [Line Items]
Post-Modification Recorded Balance	9	139	221
Consumer
Financing Receivable, Modifications [Line Items]
Post-Modification Recorded Balance	14	39	9
Term Modification
Financing Receivable, Modifications [Line Items]
Post-Modification Recorded Balance	14	1,577	304
Term Modification | Commercial & industrial
Financing Receivable, Modifications [Line Items]
Post-Modification Recorded Balance	0	0	0
Term Modification | Commercial, secured by real estate
Financing Receivable, Modifications [Line Items]
Post-Modification Recorded Balance	0	1,539	74
Term Modification | Residential real estate
Financing Receivable, Modifications [Line Items]
Post-Modification Recorded Balance	0	38	221
Term Modification | Consumer
Financing Receivable, Modifications [Line Items]
Post-Modification Recorded Balance	14	0	9
Rate Modification
Financing Receivable, Modifications [Line Items]
Post-Modification Recorded Balance	0	75	0
Rate Modification | Commercial & industrial
Financing Receivable, Modifications [Line Items]
Post-Modification Recorded Balance	0	0	0
Rate Modification | Commercial, secured by real estate
Financing Receivable, Modifications [Line Items]
Post-Modification Recorded Balance	0	0	0
Rate Modification | Residential real estate
Financing Receivable, Modifications [Line Items]
Post-Modification Recorded Balance	0	47	0
Rate Modification | Consumer
Financing Receivable, Modifications [Line Items]
Post-Modification Recorded Balance	0	28	0
Interest Only
Financing Receivable, Modifications [Line Items]
Post-Modification Recorded Balance	0	304	0
Interest Only | Commercial & industrial
Financing Receivable, Modifications [Line Items]
Post-Modification Recorded Balance	0	0	0
Interest Only | Commercial, secured by real estate
Financing Receivable, Modifications [Line Items]
Post-Modification Recorded Balance	0	304	0
Interest Only | Residential real estate
Financing Receivable, Modifications [Line Items]
Post-Modification Recorded Balance	0	0	0
Interest Only | Consumer
Financing Receivable, Modifications [Line Items]
Post-Modification Recorded Balance	0	0	0
Principal Forgiveness [Member]
Financing Receivable, Modifications [Line Items]
Post-Modification Recorded Balance	9	0	0
Principal Forgiveness [Member] | Commercial & industrial
Financing Receivable, Modifications [Line Items]
Post-Modification Recorded Balance	0	0	0
Principal Forgiveness [Member] | Commercial, secured by real estate
Financing Receivable, Modifications [Line Items]
Post-Modification Recorded Balance	0	0	0
Principal Forgiveness [Member] | Residential real estate
Financing Receivable, Modifications [Line Items]
Post-Modification Recorded Balance	9	0	0
Principal Forgiveness [Member] | Consumer
Financing Receivable, Modifications [Line Items]
Post-Modification Recorded Balance	0	0	0
Combination
Financing Receivable, Modifications [Line Items]
Post-Modification Recorded Balance	0	437	0
Combination | Commercial & industrial
Financing Receivable, Modifications [Line Items]
Post-Modification Recorded Balance	0	0	0
Combination | Commercial, secured by real estate
Financing Receivable, Modifications [Line Items]
Post-Modification Recorded Balance	0	372	0
Combination | Residential real estate
Financing Receivable, Modifications [Line Items]
Post-Modification Recorded Balance	0	54	0
Combination | Consumer
Financing Receivable, Modifications [Line Items]
Post-Modification Recorded Balance	$ 0	$ 11	$ 0

XML

LOANS, ACTIVITY IN MORTGAGE SERVICING RIGHTS (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Servicing Asset at Amortized Cost, Balance [Roll Forward]
Balance, beginning of year	$ 428	$ 488	$ 591
Amount capitalized to mortgage servicing rights	91	109	78
Amortization of mortgage servicing rights	(123)	(169)	(181)
Balance, end of year	$ 396	$ 428	$ 488

XML

ACQUIRED CREDIT IMPAIRED LOANS (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans acquired	$ 848,769	$ 819,549
Less allowance for loan losses	3,403	3,575
Loans, net	845,657	816,228
Commercial & industrial
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans acquired	36,057	41,878
Commercial, secured by real estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans acquired	527,947	477,275
Residential real estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans acquired	251,582	265,788
Consumer
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans acquired	17,450	19,173
Agricultural
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans acquired	15,194	14,802
Other loans, including deposit overdrafts
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans acquired	539	633
Financial Receivable Acquired Credit Impaired
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans acquired	7,482	9,346
Less allowance for loan losses	0
Loans, net	7,482	$ 9,054
Financial Receivable Acquired Credit Impaired | Commercial & industrial
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans acquired	1,008
Financial Receivable Acquired Credit Impaired | Commercial, secured by real estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans acquired	4,048
Financial Receivable Acquired Credit Impaired | Residential real estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans acquired	2,024
Financial Receivable Acquired Credit Impaired | Consumer
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans acquired	0
Financial Receivable Acquired Credit Impaired | Agricultural
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans acquired	0
Financial Receivable Acquired Credit Impaired | Other loans, including deposit overdrafts
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans acquired	$ 402

XML

ACQUIRED CREDIT IMPAIRED LOANS, OUTSTANDING BALANCE AND CARRYING AMOUNT (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Acquired Credit Impaired Loans [Abstract]
Outstanding balance	$ 9,065	$ 12,289
Carrying amount	$ 7,482	$ 9,346

XML

ACQUIRED CREDIT IMPAIRED LOANS, ACCRETABLE DISCOUNT RELATED TO ACQUIRED IMPAIRED LOANS (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities, Accretable Yield Movement Schedule [Roll Forward]
Accretable discount, beginning of year	$ 1,080	$ 1,503
Accretable discount acquired during period	0	0
Reclass from nonaccretable discount to accretable discount	564	423
Less disposals	(170)	(5)
Less accretion	(805)	(841)
Accretable discount, end of year	$ 669	$ 1,080

XML

OTHER REAL ESTATE OWNED (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2017
Other Real Estate [Roll Forward]
Balance, beginning of year	$ 0	$ 846
Additions	974	214
Reductions due to sales	(974)	(484)
Reductions due to valuation write downs	0	(576)
Balance, end of year	0	0
Other real estate owned [Abstract]
Amount	$ 0	$ 846	$ 0
Residential real estate in the process of foreclosure			$ 185

XML

PREMISES AND EQUIPMENT (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Premises and equipment [Abstract]
Premises and equipment, gross	$ 55,923	$ 50,104
Less accumulated depreciation	20,996	19,860
Premises and equipment, net	34,927	30,244
Depreciation charged	1,549	1,210	$ 1,427
Land
Premises and equipment [Abstract]
Premises and equipment, gross	8,190	8,277
Buildings
Premises and equipment [Abstract]
Premises and equipment, gross	31,965	21,400
Equipment
Premises and equipment [Abstract]
Premises and equipment, gross	15,648	13,065
Construction in progress
Premises and equipment [Abstract]
Premises and equipment, gross	$ 120	$ 7,362

XML

LEASES (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Minimum annual rentals payment [Abstract]
2017	$ 321
2018	243
2019	207
2020	161
2021	164
Thereafter	3,363
Total	4,459
Rental expenses	$ 569	$ 545	$ 542

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GOODWILL AND OTHER INTANGIBLE ASSETS, CHANGES IN GOODWILL (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Goodwill [Roll Forward]
Balance, beginning of year	$ 30,183
Additions from acquisitions	0	$ 0
Balance, end of year	$ 30,183	$ 30,183

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GOODWILL AND OTHER INTANGIBLE ASSETS, OTHER INTANGIBLE ASSETS (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Other intangible assets included in other assets [Abstract]
Gross Intangible Assets	$ 7,737	$ 7,646
Accumulated Amortization	3,938	3,064
Net Intangible Assets	3,799	4,582
Core deposit intangibles
Other intangible assets included in other assets [Abstract]
Gross Intangible Assets	6,458	6,458
Accumulated Amortization	3,055	2,304
Net Intangible Assets	3,403	4,154
Mortgage servicing rights
Other intangible assets included in other assets [Abstract]
Gross Intangible Assets	1,279	1,188
Accumulated Amortization	883	760
Net Intangible Assets	$ 396	$ 428

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GOODWILL AND OTHER INTANGIBLE ASSETS, ESTIMATED AGGREGATE FUTURE AMORTIZATION EXPENSE (Details) $ in Thousands	Dec. 31, 2017 USD ($)
Estimated aggregate future amortization expense [Abstract]
2017	$ 848
2018	829
2019	815
2020	800
2021	$ 224

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AFFORDABLE HOUSING TAX CREDIT LIMITED PARTNERSHIP (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Equity Method Investments and Joint Ventures [Abstract]
Affordable housing tax credit investment	$ 3,000	$ 2,000
Less amortization	231	93
Net affordable housing tax credit investment	2,769	1,907
Unfunded commitment	$ 2,257	1,617
Funding period for unfunded commitment	10 years
Tax credits and other tax benefits recognized	$ 180	103	$ 14
Tax credit amortization expense included in provision for income taxes	$ 138	$ 81	$ 12

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CERTIFICATES OF DEPOSIT (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Contractual maturities of time deposits [Abstract]
2017	$ 64,454
2018	34,893
2019	49,289
2020	32,370
2021	8,667
Thereafter	2,226
Time deposits	191,899
Time deposits of $250,000 or more	$ 17,759	$ 22,410

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BORROWINGS, FUNDS BORROWED FROM FHLB (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Debt Disclosure [Abstract]
Short Term Advances Maximum Borrowing Capacity under Repo Advance program	$ 65,300
Funds borrowed from the FHLB at December 31 by year of maturity
Due in next twelve months	248	$ 295
Due in year two	55	248
Due in year three		55
Long-term debt	$ 303	$ 598
Average rate of funds borrowed from the FHLB at December 31 by year of maturity
Due in next twelve months (as a percent)	2.82%	2.82%
Due in year two (as a percent)	2.82%	2.82%
Due in year three (as a percent)		2.82%
Weighted average interest rate (as a percent)	2.82%	2.82%

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BORROWINGS, NARRATIVE (Details)	12 Months Ended
	Dec. 31, 2017 USD ($) institution	Dec. 31, 2016 USD ($)
Debt Disclosure [Abstract]
Pledged financial instruments for Federal Home Loan Bank	$ 217,000,000	$ 229,000,000
FHLB remaining borrowing capacity	$ 56,300,000
Number of financial institution (in institution) | institution	3
First arrangement short term borrowings	$ 10,000,000
Second arrangement short term borrowings	10,000,000
Third arrangement short term borrowings	$ 20,000,000
Debt Instrument [Line Items]
Debt Instrument, Basis Spread on Variable Rate	5000.00%
Short-term advances under Cash Management Advance program	$ 65,300,000.0
Variable rate interest rate terms	90 days
Fixed interest rate terms	30 days
Expiration date for Cash Management Advance program	Aug. 24, 2018
Maximum short-term borrowing at month end	$ 16,320,000	18,715,000
Short-term borrowing average balances	$ 10,515,000	13,891,000
Short term borrowing held by member of board of director		$ 3,100,000
Federal Funds Rate
Debt Instrument [Line Items]
Debt Instrument, Basis Spread on Variable Rate	0.50%

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BORROWINGS, SHORT TERM DEBT (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Short-term Debt [Line Items]
Amount	$ 47,000	$ 42,040
Rate	1.43%	0.42%
Line of credit
Short-term Debt [Line Items]
Amount	$ 0	$ 0
Rate	0.00%	0.00%
FHLB short-term advance
Short-term Debt [Line Items]
Amount	$ 47,000	$ 25,000
Rate	1.43%	0.63%
Repurchase agreements
Short-term Debt [Line Items]
Amount	$ 0	$ 17,040
Rate	0.00%	0.10%

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BORROWINGS Schedule of Short-Term Borrowings (Details)	12 Months Ended
	Dec. 31, 2017
Short-term Debt [Line Items]
Debt Instrument, Basis Spread on Variable Rate	5000.00%

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INCOME TAXES, PROVISION FOR FEDERAL INCOME TAXES (Details) - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Provision for federal income taxes [Abstract]
Income taxes currently payable									$ 3,018	$ 3,515	$ 4,280
Income Tax Expense (Benefit), Continuing Operations, Adjustment of Deferred Tax (Asset) Liability									(224)	0	0
Deferred income tax provision (benefit)									1,478	928	(58)
Provision for income taxes	$ 1,017	$ 1,040	$ 1,027	$ 1,188	$ 1,337	$ 995	$ 1,043	$ 1,068	$ 4,272	$ 4,443	$ 4,222

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INCOME TAXES, EFFECTIVE INCOME TAX RATE RECONCILIATION (Details)	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Reconciliation between the statutory income tax and effective tax rate [Abstract]
Statutory tax rate	34.00%	34.00%	34.00%
Increase (decrease) resulting from -
Tax exempt interest	(6.00%)	(6.30%)	(6.00%)
Tax exempt income on bank owned life insurance	(1.70%)	(1.50%)	(1.40%)
Effective Income Tax Rate Reconciliation, Change in Enacted Tax Rate, Percent	(1.30%)	0.00%	0.00%
Effective Income Tax Rate Reconciliation, Captive Insurance Premium Income, Percent	(0.90%)	0.00%	0.00%
Other – net	0.70%	0.10%	0.30%
Effective tax rate	24.80%	26.30%	26.90%

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INCOME TAXES, DEFERRED TAX ASSETS AND DEFERRED TAX LIABILITIES (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Deferred tax assets:
Allowance for loan losses	$ 715	$ 1,223
Net unrealized losses on investment securities available-for-sale	707	1,369
Fair value adjustment on loans acquired from merger with First Capital	238	592
Pension and deferred compensation	760	1,157
Other	471	546
Deferred tax assets, gross	2,891	4,887
Deferred tax liabilities:
Depreciation of premises and equipment	(1,672)	(1,332)
Amortization of intangibles	(1,030)	(1,567)
Deferred Tax Liabilities, Prepaid Expenses	210	0
Deferred loan fees	(1)	(2)
FHLB stock dividends	(216)	(351)
Fair value adjustment on securities acquired from merger with First Capital	(9)	(19)
Deferred tax liabilities, gross	(3,138)	(3,271)
Net deferred tax (liabilities) assets	$ (247)
Net deferred tax (liabilities) assets		$ 1,616

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INCOME TAXES, NARRATIVE (Details) - USD ($)	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Income Tax Disclosure [Abstract]
Unrecognized tax benefits	$ 0	$ 0
Unrecognized interest and penalties	$ 0	$ 0	$ 0

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COMMITMENTS AND CONTINGENT LIABILITIES (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet risks, liability	$ 150,727	$ 123,552
Commitments outstanding for capital expenditures	40
Commercial loans
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet risks, liability	18,964	10,350
Other loans | Fixed rate
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet risks, liability	2,747	4,425
Other loans | Adjustable rate
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet risks, liability	1,150	1,044
Unused lines of credit | Fixed rate
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet risks, liability	20,984	9,731
Unused lines of credit | Adjustable rate
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet risks, liability	90,147	80,222
Unused overdraft protection amounts on demand and NOW accounts
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet risks, liability	16,441	17,123
Standby letters of credit
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet risks, liability	$ 294	$ 657

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REGULATORY MATTERS, NARRATIVE (Details) - USD ($) $ in Thousands	Jul. 27, 2011	Dec. 31, 2017	Dec. 31, 2016
Banking and Thrift [Abstract]
Minimum cash reserve balance with Federal Reserve Bank		$ 7,924	$ 10,903
Cash Reserve balance		1,422	$ 4,313
Dividend payable from retained earnings without affecting capital position		$ 18,865
Shares available for issuance under Dividend Reinvestment and Stock Purchase Plan (in shares)	400,000
Capital Conservation Buffer, Fully Implimented		2.50%

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REGULATORY MATTERS (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Ratio of Common Equity Tier 1 Capital to risk-weighted assets
Minimum Requirement	4.50%
Minimum Requirement with Capital Conservation Buffer for 2017	5.75%
To Be Considered Well-Capitalized	6.50%
Tier One Risk Based Capital Required for Capital Adequacy to Risk Weighted Assets	6.00%
Tier One Risk Based Capital Required For Capital Adequacy To Risk Weighted Assets With Capital Conservation Buffer	7.25%
Ratio of total capital (tier 1 capital plus tier 2 capital) to risk-weighted assets	8.00%
Ratio of total capital (tier 1 capital plus tier 2 capital) to risk-weighted assets
Minimum Requirement	8.00%
Minimum Requirement with Capital Conservation Buffer for 2017	9.25%
To Be Considered Well-Capitalized	10.00%
Leverage ratio (tier 1 capital to adjusted quarterly average total assets)
Minimum Requirement	4.00%
To Be Considered Well-Capitalized	5.00%
Regulatory Capital:
Shareholders' equity	$ 150,271	$ 142,944	$ 140,108	$ 125,695
Consolidated Company
Regulatory Capital:
Shareholders' equity	150,271	142,944
Goodwill and other intangible assets	(32,906)	(32,676)
Accumulated other comprehensive loss	2,828	2,617
Tier 1 risk-based capital	120,193	112,885
Eligible allowance for loan losses	3,403	3,575
Total risk-based capital	$ 123,596	$ 116,460
Capital Ratios:
Common Equity Tier 1 Capital to risk-weighted assets	13.29%	13.00%
Tier 1 capital to risk-weighted assets	13.29%	13.00%
Total capital (tier 1 capital plus tier 2 capital) to risk-weighted assets	13.66%	13.41%
Leverage ratio (tier 1 capital to adjusted quarterly average total assets)	9.51%	8.81%
Bank
Regulatory Capital:
Shareholders' equity	$ 148,163	$ 141,325
Goodwill and other intangible assets	(32,906)	(32,676)
Accumulated other comprehensive loss	2,859	2,605
Tier 1 risk-based capital	118,116	111,254
Eligible allowance for loan losses	3,403	3,575
Total risk-based capital	$ 121,519	$ 114,829
Capital Ratios:
Common Equity Tier 1 Capital to risk-weighted assets	13.07%	12.82%
Tier 1 capital to risk-weighted assets	13.07%	12.82%
Total capital (tier 1 capital plus tier 2 capital) to risk-weighted assets	13.45%	13.24%
Leverage ratio (tier 1 capital to adjusted quarterly average total assets)	9.36%	8.69%

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ACCUMULATED OTHER COMPREHENSIVE INCOME, CHANGES IN AOCI (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Balance at beginning of year	$ 142,944	$ 140,108
Before reclassifications	427	(2,141)
Reclassifications	(152)	(712)
Balance at end of year	150,271	142,944
Unrealized Gains and Losses on Available-for-Sale Securities
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Balance at beginning of year	(2,633)	469
Before reclassifications	585	(2,390)
Reclassifications	(152)	(712)
Balance at end of year	(2,200)	(2,633)
Changes in Pension Plan Assets and Benefit Obligations
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Balance at beginning of year	16	(233)
Before reclassifications	(158)	249
Reclassifications	0	0
Balance at end of year	(142)	16
Accumulated Other Comprehensive Income (Loss)
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Balance at beginning of year	(2,617)	236
Balance at end of year	$ (2,342)	$ (2,617)

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ACCUMULATED OTHER COMPREHENSIVE INCOME, RECLASSIFICATION OF AOCI (Details) - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Realized gain on sales of securities									$ (233)	$ (1,082)	$ (495)
Less provision for income taxes	$ (1,017)	$ (1,040)	$ (1,027)	$ (1,188)	$ (1,337)	$ (995)	$ (1,043)	$ (1,068)	(4,272)	(4,443)	$ (4,222)
Reclassification adjustment, net of taxes									152	712
Unrealized Gains and Losses on Available-for-Sale Securities
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Reclassification adjustment, net of taxes									152	712
Unrealized Gains and Losses on Available-for-Sale Securities | Reclassification out of Accumulated Other Comprehensive Income
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Realized gain on sales of securities									233	1,082
Less provision for income taxes									81	370
Reclassification adjustment, net of taxes									$ 152	$ 712

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RETIREMENT PLANS, NARRATIVE (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2017 USD ($)	Dec. 31, 2016 USD ($)	Dec. 31, 2015 USD ($)	Jul. 01, 2017	Jul. 01, 2015	Feb. 01, 2009 age_and_service
Defined Contribution Plan [Abstract]
Age plus vesting service (less than, in years) | age_and_service						65
Employer's matching contribution to 401(k) of employees hired on or after January 1, 2009	50.00%
Maximum annual contribution per employee, percent	3.00%
Minimum annual contribution for employees who received a benefit reduction under plan amendments	5.00%
Maximum annual contribution for employees who received a benefit reduction under plan amendments	7.00%
Defined benefit plan, minimum funded percentage				80.00%	80.00%
Employer expected contribution to 401 (k) plan in next fiscal year	$ 426
Deferred Compensation Arrangements
Deferred Compensation Arrangements [Abstract]
Accrued interest on deferred compensation	8.00%
Deferred compensation liability	$ 3,406	$ 3,407
Qualified noncontributory defined benefit retirement plan
Defined Contribution Plan [Abstract]
Expected contribution by employer to noncontributory defined benefit plan	224
Supplemental Employee Retirement Plan
Supplemental income plan [Abstract]
Projected benefit obligation	$ 1,249	$ 1,284
Discount rate	5.20%	5.20%
Service cost	$ 0	$ 0	$ 183
Interest cost	$ 62	$ 63	$ 56
Qualified noncontributory defined benefit retirement plan
Supplemental income plan [Abstract]
Discount rate	3.60%	4.14%	4.34%
Service cost	$ 0	$ 41	$ 38
Interest cost	69	78	$ 68
Recognized in other liabilities nonqualified defined benefit retirement plan	1,971	1,727
Accumulated benefit obligation under nonqualified defined benefit retirement plan	1,971	$ 1,727
Future amortization of prior service cost	16
Citizens National Bank
Defined Contribution Plan [Abstract]
Qualified noncontributory defined benefit pension plan liability	$ 128

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RETIREMENT PLANS, COSTS OF RETIREMENT PLANS (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Defined Benefit Plan Disclosure [Line Items]
401(k) plan expense	$ 374	$ 359	$ 346
Qualified noncontributory defined benefit retirement plan
Defined Benefit Plan Disclosure [Line Items]
Plan expense	$ 1,054	$ 969	$ 984

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RETIREMENT PLANS, NET PERIODIC BENEFIT COSTS (Details) - Qualified noncontributory defined benefit retirement plan - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Defined Benefit Plan, Net Periodic Benefit Cost (Credit) [Abstract]
Service cost	$ 0	$ 41	$ 38
Interest cost	69	78	68
Amortization of unrecognized (gain) loss	16	168	171
Net periodic pension cost	$ 85	$ 287	$ 277

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RETIREMENT PLANS, CHANGES IN PROJECTED BENEFIT OBLIGATION (Details) - Qualified noncontributory defined benefit retirement plan - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Reconciliation of changes in projected benefit obligation [Abstract]
Projected benefit obligation at beginning of year	$ 1,727	$ 1,843	$ 1,741
Service cost	0	41	38
Interest cost	69	78	68
Actuarial (gain) or loss	238	(209)	10
Benefits paid	(63)	(26)	(14)
Projected benefit obligation at end of year	$ 1,971	$ 1,727	$ 1,843

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RETIREMENT PLANS, AMOUNTS RECOGNIZED IN AOCI (Details) - Qualified noncontributory defined benefit retirement plan - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Defined Benefit Plan, Accumulated Other Comprehensive Income (Loss), after Tax [Abstract]
Net actuarial (gain)/loss	$ (141)	$ 16	$ (233)
Past service cost	0	0	0
Total	$ 141	$ (16)	$ 233

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RETIREMENT PLANS, ASSUMPTIONS USED (Details) - Qualified noncontributory defined benefit retirement plan	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Benefit obligation:
Discount rate	3.60%	4.14%	4.34%
Salary increase rate	2.00%	2.00%	2.00%
Net periodic pension cost:
Discount rate	4.14%	4.34%	3.95%
Salary increase rate	2.00%	2.00%	2.00%
Amortization period in years	1 year	1 year	1 year 11 months 23 days

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RETIREMENT PLANS, ESTIMATED FUTURE BENEFIT PAYMENTS (Details) - Qualified noncontributory defined benefit retirement plan	Dec. 31, 2017 USD ($)
Defined Benefit Plan Disclosure [Line Items]
Contributions, next fiscal year	$ 0
Defined Benefit Plan, Expected Future Benefit Payment [Abstract]
2018	130,000
2019	130,000
2020	130,000
2021	130,000
2022	130,000
2023-2026	$ 633,000

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STOCK-BASED COMPENSATION, NARRATIVE (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Period options granted to date vest ratably	5 years
Stock Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Aggregate intrinsic value for option outstanding	$ 183	$ 273
Aggregate intrinsic value of options exercisable	183	255
Total expense related to options included in salaries and wages	1	5	$ 19
Tax benefit from compensation expense	$ 0	$ 2	$ 6
Ownership Incentive Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized for issuance (in shares)	200,000
Ownership Incentive Plan | Stock Options
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
Ownership Incentive Plan 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized for issuance (in shares)	450,000

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STOCK-BASED COMPENSATION, STOCK OPTIONS, BY EXERCISE PRICE (Details)	12 Months Ended
	Dec. 31, 2017 $ / shares shares
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Outstanding stock options, number (in shares) | shares	20,265
Outstanding stock option, weighted average exercise price (in dollars per share)	$ 11.42
Outstanding stock option, weighted average remaining contractual life	2 years 3 months 20 days
Exercisable stock options, number (in shares) | shares	20,265
Exercisable stock option, weighted average exercise price (in dollars per shares)	$ 11.42
Exercisable stock options, weighted average remaining contractual life	2 years 3 months 20 days
$9.00 - 10.99
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Exercise price range, lower range limit (in dollars per share)	$ 9.00
Exercise price range, upper range limit (in dollars per share)	$ 10.99
Outstanding stock options, number (in shares) | shares	4,356
Outstanding stock option, weighted average exercise price (in dollars per share)	$ 9.00
Outstanding stock option, weighted average remaining contractual life	1 year 26 days
Exercisable stock options, number (in shares) | shares	4,356
Exercisable stock option, weighted average exercise price (in dollars per shares)	$ 9.00
Exercisable stock options, weighted average remaining contractual life	1 year 26 days
$11.00 - 12.99
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Exercise price range, lower range limit (in dollars per share)	$ 11.00
Exercise price range, upper range limit (in dollars per share)	$ 12.99
Outstanding stock options, number (in shares) | shares	15,909
Outstanding stock option, weighted average exercise price (in dollars per share)	$ 12.08
Outstanding stock option, weighted average remaining contractual life	2 years 7 months 22 days
Exercisable stock options, number (in shares) | shares	15,909
Exercisable stock option, weighted average exercise price (in dollars per shares)	$ 12.08
Exercisable stock options, weighted average remaining contractual life	2 years 7 months 22 days
$17.00 - 18.99
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Exercise price range, lower range limit (in dollars per share)	$ 17.00
Exercise price range, upper range limit (in dollars per share)	$ 18.99
Outstanding stock options, number (in shares) | shares	0
Outstanding stock option, weighted average exercise price (in dollars per share)	$ 0.00
Outstanding stock option, weighted average remaining contractual life	0 days
Exercisable stock options, number (in shares) | shares	0
Exercisable stock option, weighted average exercise price (in dollars per shares)	$ 0.00
Exercisable stock options, weighted average remaining contractual life	0 days

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STOCK-BASED COMPENSATION, STOCK OPTION ACTIVITY (Details) - Stock Options - $ / shares	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Options
Outstanding at beginning of period (in shares)	24,669	83,861	99,810
Granted (in shares)	0	0	0
Exercised (in shares)	(3,398)	(51,390)	(13,449)
Expired (in shares)	(1,006)	(7,802)	(2,500)
Outstanding at end of period (in shares)	20,265	24,669	83,861
Exercisable at end of period (in shares)	20,265	22,924	75,072
Weighted Average Exercise Price
Outstanding at beginning of period (in dollars per share)	$ 12.17	$ 12.39	$ 12.16
Granted (in dollars per shares)	0.00	0.00	0.00
Exercised (in dollars per share)	14.94	11.53	11.31
Expired (in dollars per share)	17.88	18.76	9.00
Outstanding at end of period (in dollars per share)	11.42	12.17	12.39
Exercisable at end of period (in dollars per share)	$ 11.42	$ 12.13	$ 12.40

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STOCK-BASED COMPENSATION, INFORMATION RELATED TO STOCK OPTIONS EXERCISED (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Intrinsic value of options exercised	$ 25	$ 288	$ 67
Cash received from options exercised	51	592	152
Tax benefit realized from options exercised	$ 5	$ 59	$ 13

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STOCK-BASED COMPENSATION, RESTRICTED STOCK ACTIVITY (Details) - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Weighted Average Grant Date Fair Value
Compensation expense relating to restricted stock	$ 75	$ 90
Restricted Stock Awards
Shares
Beginning of period (in shares)	8,624	16,038	0
Granted (in shares)	4,027	0	16,038
Vested (in shares)	(3,834)	(7,414)	0
Forfeited (in shares)	0	0	0
End of period (in shares)	8,817	8,624	16,038
Weighted Average Grant Date Fair Value
Beginning of period (usd per share)	$ 15.47	$ 15.47	$ 0.00
Granted (usd per share)	22.60	0.00	15.47
Vested (usd per share)	16.73	15.47	0.00
Forfeited (usd per share)	0.00	0.00	0.00
End of period (usd per share)	$ 16.44	$ 15.47	$ 15.47
Compensation expense relating to restricted stock	$ 75	$ 90	$ 90
Tax benefit from compensation expense	26	$ 31	$ 31
Restricted stock compensation costs not yet recognized	$ 84
Compensation costs not yet recognized, period for recognition	4 years 2 months

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EARNINGS PER SHARE (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Earnings Per Share [Abstract]
Net income	$ 3,617	$ 3,106	$ 3,003	$ 3,246	$ 3,654	$ 2,896	$ 2,968	$ 2,964	$ 12,972	$ 12,482	$ 11,474
Less allocation of earnings and dividends to participating securities									7	13	0
Net income allocated to common shareholders									$ 12,965	$ 12,469	$ 11,474
Weighted average common shares outstanding, gross (in shares)									10,011,358	9,958,300	9,704,965
Less average participating securities (in shares)									5,783	10,243	0
Weighted average number of shares outstanding used in the calculation of basic earnings per common share (in shares)									10,005,575	9,948,057	9,704,965
Add dilutive effect of:
Stock options (in shares)									6,936	10,765	17,174
Stock warrants (in shares)									0	17,548	89,328
Adjusted weighted average number of shares outstanding used in the calculation of diluted earnings per common share (in shares)									10,012,511	9,976,370	9,811,467
Earnings per common share:
Basic (in dollars per share)	$ 0.37	$ 0.31	$ 0.30	$ 0.32	$ 0.37	$ 0.29	$ 0.30	$ 0.30	$ 1.30	$ 1.26	$ 1.18
Diluted (in dollars per share)	$ 0.36	$ 0.31	$ 0.30	$ 0.32	0.37	$ 0.29	$ 0.29	$ 0.30	$ 1.29	$ 1.25	$ 1.17
Stock Compensation Plan
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share (in shares)									0	0	12,962
Weighted-average price per share of common stock excluded from computation of earnings per share (in dollars per share)					$ 18.41					$ 18.41

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RELATED PARTY TRANSACTIONS (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Related parties transaction [Roll Forward]
Beginning balances	$ 1,447	$ 1,091
Additions	669	64
Change in composition of related parties	0	506
Reductions	(246)	(214)
Ending Balance	1,870	1,447
Deposits from related parties	$ 5,698	$ 4,618

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FAIR VALUE OF FINANCIAL INSTRUMENTS, AT FAIR VALUE (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	$ 278,472	$ 320,659
Other real estate owned and repossessed assets	0	0	$ 846
Recurring fair value measurements
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total recurring fair value measurements	278,472	320,659
Recurring fair value measurements | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total recurring fair value measurements	2,999	28,870
Recurring fair value measurements | Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total recurring fair value measurements	273,954	290,307
Recurring fair value measurements | Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total recurring fair value measurements	0	0
Nonrecurring fair value measurements
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	3,359	5,340
Nonrecurring fair value measurements | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	0	0
Nonrecurring fair value measurements | Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	0	0
Nonrecurring fair value measurements | Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	3,359	5,340
U.S. Treasury notes
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	2,259	28,145
U.S. Treasury notes | Recurring fair value measurements
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	2,259	28,145
U.S. Treasury notes | Recurring fair value measurements | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	2,259	28,145
U.S. Treasury notes | Recurring fair value measurements | Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	0	0
U.S. Treasury notes | Recurring fair value measurements | Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	0	0
U.S. Agency notes
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	83,261	85,400
U.S. Agency notes | Recurring fair value measurements
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	83,261	85,400
U.S. Agency notes | Recurring fair value measurements | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	0	0
U.S. Agency notes | Recurring fair value measurements | Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	83,261	85,400
U.S. Agency notes | Recurring fair value measurements | Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	0	0
U.S. Agency mortgage-backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	67,153	71,047
U.S. Agency mortgage-backed securities | Recurring fair value measurements
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	67,153	71,047
U.S. Agency mortgage-backed securities | Recurring fair value measurements | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	0	0
U.S. Agency mortgage-backed securities | Recurring fair value measurements | Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	67,153	71,047
U.S. Agency mortgage-backed securities | Recurring fair value measurements | Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	0	0
Non-taxable municipal securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	102,174	113,015
Non-taxable municipal securities | Recurring fair value measurements
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	102,174	113,015
Non-taxable municipal securities | Recurring fair value measurements | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	0	0
Non-taxable municipal securities | Recurring fair value measurements | Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	102,174	113,015
Non-taxable municipal securities | Recurring fair value measurements | Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	0	0
Taxable municipal securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	20,366	19,845
Taxable municipal securities | Recurring fair value measurements
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	20,366	19,845
Taxable municipal securities | Recurring fair value measurements | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	0	0
Taxable municipal securities | Recurring fair value measurements | Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	20,366	19,845
Taxable municipal securities | Recurring fair value measurements | Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	0	0
Mutual funds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	2,542	2,482
Mutual funds | Recurring fair value measurements
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	1,023	1,000
Mutual funds | Recurring fair value measurements | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	23	0
Mutual funds | Recurring fair value measurements | Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	1,000	1,000
Mutual funds | Recurring fair value measurements | Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	0	0
Mutual funds measured at net asset value | Recurring fair value measurements
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	1,519	1,482
Trust preferred securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	50	48
Trust preferred securities | Recurring fair value measurements
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	50	48
Trust preferred securities | Recurring fair value measurements | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	50	48
Trust preferred securities | Recurring fair value measurements | Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	0	0
Trust preferred securities | Recurring fair value measurements | Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	0	0
Equity securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	667	677
Equity securities | Recurring fair value measurements
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	667	677
Equity securities | Recurring fair value measurements | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	667	677
Equity securities | Recurring fair value measurements | Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	0	0
Equity securities | Recurring fair value measurements | Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, at fair value	$ 0	$ 0

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FAIR VALUE OF FINANCIAL INSTRUMENTS, QUANTITATIVE INFORMATION ABOUT UNOBSERVABLE INPUTS USED IN RECURRING AND NONRECURRING LEVEL 3 INPUTS (Details) - Nonrecurring fair value measurements - Impaired loans - Significant Unobservable Inputs (Level 3) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value	$ 3,359	$ 5,340
High
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount rate	8.25%	8.25%
Low
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount rate	3.25%	4.50%
Weighted Average
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount rate	6.27%	5.56%

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FAIR VALUE OF FINANCIAL INSTRUMENTS, BY BALANCE SHEET GROUPING (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
FINANCIAL ASSETS:
Investment securities, held-to-maturity	$ 32,350	$ 40,490
Carrying Amount
FINANCIAL ASSETS:
Cash and cash equivalents	25,386	18,865
Investment securities, held-to-maturity	32,571	41,003
Federal Reserve Bank stock	2,732	2,732
Federal Home Loan Bank stock	3,638	3,638
Loans, net	845,657	816,228
Accrued interest receivable	3,511	3,559
FINANCIAL LIABILITIES:
Deposits	1,085,821	1,110,905
Short-term borrowings	47,000	42,040
Long-term debt	303	598
Accrued interest payable	329	307
Fair Value
FINANCIAL ASSETS:
Cash and cash equivalents	25,386	18,865
Investment securities, held-to-maturity	32,350	40,490
Federal Reserve Bank stock	2,732	2,732
Federal Home Loan Bank stock	3,638	3,638
Loans, net	813,368	799,791
Accrued interest receivable	3,511	3,559
FINANCIAL LIABILITIES:
Deposits	1,087,086	1,113,187
Short-term borrowings	47,000	42,040
Long-term debt	307	614
Accrued interest payable	329	307
Quoted Prices in Active Markets for Identical Assets (Level 1)
FINANCIAL ASSETS:
Cash and cash equivalents	25,386	18,865
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	0	0
FINANCIAL LIABILITIES:
Deposits	894,046	896,147
Short-term borrowings	47,000	42,040
Long-term debt	0	0
Accrued interest payable	0	0
Significant Other Observable Inputs (Level 2)
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	3,511	3,559
FINANCIAL LIABILITIES:
Deposits	193,040	217,040
Short-term borrowings	0	0
Long-term debt	307	614
Accrued interest payable	329	307
Significant Unobservable Inputs (Level 3)
FINANCIAL ASSETS:
Cash and cash equivalents	0	0
Investment securities, held-to-maturity	32,350	40,490
Federal Reserve Bank stock	0	0
Federal Home Loan Bank stock	0	0
Loans, net	813,368	799,791
Accrued interest receivable	0	0
FINANCIAL LIABILITIES:
Deposits	0	0
Short-term borrowings	0	0
Long-term debt	0	0
Accrued interest payable	$ 0	$ 0

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QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Quarterly Financial Information Disclosure [Abstract]
Interest income	$ 11,610	$ 11,055	$ 10,934	$ 10,864	$ 11,226	$ 10,895	$ 11,008	$ 10,621	$ 44,463	$ 43,750	$ 42,659
Interest expense	953	908	861	877	887	885	883	849	3,599	3,504	3,328
NET INTEREST INCOME	10,657	10,147	10,073	9,987	10,339	10,010	10,125	9,772	40,864	40,246	39,331
Provision for loan losses	(10)	(12)	222	15	55	372	396	90	215	913	1,366
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	10,667	10,159	9,851	9,972	10,284	9,638	9,729	9,682	40,649	39,333	37,965
Total non-interest income	2,579	2,659	2,790	2,430	2,615	2,846	2,750	2,642	10,458	10,853	10,123
Total non-interest expenses	8,612	8,672	8,611	7,968	7,908	8,593	8,468	8,292	33,863	33,261	32,392
INCOME BEFORE INCOME TAXES	4,634	4,146	4,030	4,434	4,991	3,891	4,011	4,032	17,244	16,925	15,696
PROVISION FOR INCOME TAXES	1,017	1,040	1,027	1,188	1,337	995	1,043	1,068	4,272	4,443	4,222
NET INCOME	$ 3,617	$ 3,106	$ 3,003	$ 3,246	$ 3,654	$ 2,896	$ 2,968	$ 2,964	$ 12,972	$ 12,482	$ 11,474
Earnings per common share:
Basic (in dollars per share)	$ 0.37	$ 0.31	$ 0.30	$ 0.32	$ 0.37	$ 0.29	$ 0.30	$ 0.30	$ 1.30	$ 1.26	$ 1.18
Diluted (in dollars per share)	$ 0.36	$ 0.31	$ 0.30	$ 0.32	$ 0.37	$ 0.29	$ 0.29	$ 0.30	$ 1.29	$ 1.25	$ 1.17

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PARENT COMPANY FINANCIAL INFORMATION - CONDENSED BALANCE SHEETS (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
ASSETS:
Investment securities available-for-sale, at fair value	$ 278,472	$ 320,659
Other assets	10,288	11,358
TOTAL ASSETS	1,295,638	1,306,799
Liabilities	1,145,367	1,163,855
Shareholders' equity	150,271	142,944	$ 140,108	$ 125,695
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	1,295,638	1,306,799
Parent Company
ASSETS:
Cash on deposit with subsidiary	308	491
Investment securities available-for-sale, at fair value	919	893
Investment in subsidiaries	148,850	141,325
Other assets	194	235
TOTAL ASSETS	150,271	142,944
Liabilities	0	0
Shareholders' equity	150,271	142,944
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 150,271	$ 142,944

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PARENT COMPANY FINANCIAL INFORMATION - CONDENSED STATEMENTS OF INCOME (Details) - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Income:
Interest and dividends	$ 11,610	$ 11,055	$ 10,934	$ 10,864	$ 11,226	$ 10,895	$ 11,008	$ 10,621	$ 44,463	$ 43,750	$ 42,659
INCOME BEFORE INCOME TAXES	4,634	4,146	4,030	4,434	4,991	3,891	4,011	4,032	17,244	16,925	15,696
Income tax benefit	(1,017)	(1,040)	(1,027)	(1,188)	(1,337)	(995)	(1,043)	(1,068)	(4,272)	(4,443)	(4,222)
NET INCOME	$ 3,617	$ 3,106	$ 3,003	$ 3,246	$ 3,654	$ 2,896	$ 2,968	$ 2,964	12,972	12,482	11,474
Parent Company
Income:
Dividends from subsidiaries									6,800	7,300	5,400
Interest and dividends									36	38	58
Net gain on sales of securities									14	8	254
Total income									6,850	7,346	5,712
Total expenses									1,290	1,014	1,016
INCOME BEFORE INCOME TAXES									5,560	6,332	4,696
Income tax benefit									380	336	250
Equity in undistributed income of subsidiaries									7,032	5,814	6,528
NET INCOME									$ 12,972	$ 12,482	$ 11,474

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PARENT COMPANY FINANCIAL INFORMATION - CONDENSED STATEMENTS OF CASH FLOWS (Details) - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Cash flows from operating activities:
Net income	$ 3,617	$ 3,106	$ 3,003	$ 3,246	$ 3,654	$ 2,896	$ 2,968	$ 2,964	$ 12,972	$ 12,482	$ 11,474
Cash flows from investing activities:
Proceeds from sales of available-for-sale securities									43,246	92,455	97,981
Cash flows from financing activities:
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR				18,865					18,865
CASH AND CASH EQUIVALENTS AT END OF YEAR	25,386				18,865				25,386	18,865
Parent Company
Cash flows from operating activities:
Net income									12,972	12,482	11,474
Adjustments for non-cash items -
Increase in undistributed income of subsidiaries									(7,032)	(5,814)	(6,528)
Other, net									84	126	42
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES									6,024	6,794	4,988
Cash flows from investing activities:
Purchases of securities available-for-sale									(54)	(177)	(215)
Available-for-sale									50	55	0
Proceeds from sales of available-for-sale securities									43	173	1,217
Payments to Acquire Interest in Subsidiaries and Affiliates									(250)	0	0
Cash paid for business acquisition									0	0	(3,757)
NET CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES									(211)	51	(2,755)
Cash flows from financing activities:
Proceeds from issuance of common stock									360	379	390
Repurchase of stock warrants									0	(1,545)	0
Cash dividends paid on common stock									(6,407)	(6,375)	(6,239)
Other									51	653	165
NET CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES									(5,996)	(6,888)	(5,684)
NET CHANGE IN CASH AND CASH EQUIVALENTS									(183)	(43)	(3,451)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR				$ 491				$ 534	491	534	3,985
CASH AND CASH EQUIVALENTS AT END OF YEAR	$ 308				$ 491				$ 308	$ 491	$ 534