Acquisition

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 merged with and into LCNB on May 31, 2018. LCNB entered into this transaction with the expectation that it would be accretive to income and expand its presence in the desirable Franklin County, Ohio market area. Immediately following the merger of CFB into LCNB, Columbus First Bank, a wholly-owned subsidiary of CFB, merged into the Bank. Columbus First Bank operated from one full-service office located in Worthington, Ohio. That office became a branch of the Bank after the merger.

Under the terms of the Merger Agreement, the shareholders of CFB received two shares of LCNB common stock for each outstanding CFB common share. Unexercised stock options of CFB were canceled in exchange for a cash payment.

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



Consideration Paid:
Common shares issued (3,253,060 shares issued at $19.55 per share)	$	63,598
Cash paid to cancel share based payment awards	783
	64,381

Identifiable Assets Acquired:
Cash and cash equivalents	13,679
Interest-bearing time deposits	10,350
Federal Home Loan Bank stock	1,207
Loans, net	282,748
Loans held for sale, net	1,819
Premises and equipment	102
Core deposit intangible	2,089
Other real estate owned	35
Other assets	2,022
Total identifiable assets acquired	314,051

Liabilities Assumed:
Deposits	245,036
Short-term borrowings	10,000
Long-term debt	22,920
Deferred income taxes	200
Other liabilities	491
Total liabilities assumed	278,647

Total Identifiable Net Assets Acquired	35,404

Goodwill resulting from merger	$	28,977

LCNB has recorded provisional amounts at June 30, 2018 for fair values related to loans, deposits, mortgage servicing rights, long-term debt, core deposit intangible, and corresponding current and deferred taxes as the initial accounting for the business combination is incomplete. As permitted by ASC 805-10-25, Business Combinations, these provisional amounts may be adjusted to reflect any new information obtained about facts and circumstances existing at the acquisition date.

The amount of goodwill recorded reflects LCNB's expansion in the Columbus market and related synergies that are expected to result from the acquisition and represents the excess purchase price over the estimated fair value of the net assets acquired. The goodwill will not be amortizable on LCNB's financial records and will not be deductible for tax purposes. 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 core deposit intangible will be amortized over the estimated weighted average economic life of the various core deposit types.

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

CFB's results of operations are included in the consolidated condensed statements of income from the date of the merger.

The amount of CFB's revenue (net interest income plus non-interest income) and net income, excluding merger-related expenses, included in LCNB's consolidated condensed statement of income for the three and six months ended June 30, 2018 were as follows (in thousands):



Total revenue	$	906
Net income	469

The following table presents unaudited pro forma information as if the merger with CFB had occurred on January 1, 2017 (in thousands). This pro forma information gives effect to certain adjustments, including purchase accounting fair value adjustments, amortization of the core deposit intangible, and related income tax effects. It does not include merger and data conversion costs. The pro forma information does not necessarily reflect the results of operations that would have occurred had the merger with CFB occurred in 2017. In particular, expected operational cost savings are not reflected in the pro forma amounts.



	Three Months Ended June 30,			Six Months Ended June 30,
	2018		2017	2018	2017
Total revenue	$	16,116	16,173	31,704	31,159
Net income	3,721		4,129	7,734	7,917
Basic earnings per common share	0.28		0.31	0.58	0.60
Diluted earnings per common share	0.28		0.31	0.58	0.60