ACQUISITIONS

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 Columbus 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 shares 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. The estimated fair values reported in LCNB's Form 10-Q for the quarterly period ended June 30, 2018 were preliminary, as the pricing study had not been finalized at that time. The following table summarizes the preliminary balances at June 30, 2018, revisions to the preliminary balances, and the balances at December 31, 2018 (in thousands):



	June 30, 2018	Fair Value Adjustments		December 31, 2018
Consideration Paid:
Common shares issued (3,253,060 shares issued at $19.55 per share)	63,598	—		63,598
Cash paid to cancel share based payment awards	783	—		783
	64,381	—		64,381

Identifiable Assets Acquired:
Cash and cash equivalents	13,679	—		13,679
Interest-bearing time deposits	10,350	—		10,350
Federal Home Loan Bank stock	1,207	—		1,207
Loans, net	282,748	(615	)	282,133
Loans held for sale, net	1,819	—		1,819
Premises and equipment	102	—		102
Core deposit intangible	2,089	88		2,177
Other real estate owned	35	—		35
Deferred income taxes	—	352		352
Other assets	2,022	(658	)	1,364
Total identifiable assets acquired	314,051	(833	)	313,218

Liabilities Assumed:
Deposits	245,036	(606	)	244,430
Short-term borrowings	10,000	—		10,000
Long-term debt	22,920	23		22,943
Deferred income taxes	200	(200	)	—
Other liabilities	491	11		502
Total liabilities assumed	278,647	(772	)	277,875

Total Identifiable Net Assets Acquired	35,404	(61	)	35,343

Goodwill resulting from merger	28,977	61		29,038

As permitted by ASC No. 805-10-25, Business Combinations, the above estimated amounts may be adjusted up to one year after the closing date of the acquisition to reflect any new information obtained about facts and circumstances existing at the acquisition date. Any changes in the estimated fair values will be recognized in the period the adjustment is identified.

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 statements of income.

CFB's results of operations are included in the consolidated 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 year ended December 31, 2018 were as follows (in thousands):



Total revenue	$	6,972
Net income	3,896

The following table presents unaudited pro forma information as if the merger with CFB had occurred on January 1, 2016 (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 2016. In particular, expected operational cost savings are not reflected in the pro forma amounts.



	2018		2017	2016
Total revenue	$	64,558	63,779	61,602
Net income	17,858		15,852	14,407
Basic earnings per common share	1.22		1.20	1.09
Diluted earnings per common share	1.22		1.19	1.09