REGULATORY MATTERS

12 Months Ended

Dec. 31, 2018

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 2018 and 2017, the Bank maintained average reserve balances of $4,982,000 and $7,924,000, respectively.  The reserve balances at December 31, 2018 and 2017 were $1,433,000 and $1,422,000, 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 2019, the restrictions generally limit dividends to the aggregate of net income for the year 2019 plus the net earnings retained for 2018 and 2017.  In addition, dividend payments may not reduce capital levels below minimum regulatory guidelines. At December 31, 2018, approximately $21,379,000 of the Bank’s earnings retained was available for dividends in 2019 under this guideline.  Dividends in excess of these limitations would require the prior approval of the Comptroller of the Currency.

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 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 was 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 2018		To Be Considered Well-Capitalized
Ratio of Common Equity Tier 1 Capital to risk-weighted assets	4.5	%	6.375	%	6.5	%
Ratio of tier 1 capital to risk-weighted assets	6.0	%	7.875	%	8.0	%
Ratio of total capital (tier 1 capital plus tier 2 capital) to risk-weighted assets	8.0	%	9.875	%	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 its regulators, the Bank was 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 Bank at December 31 follows (dollars in thousands):

	2018		2017
Regulatory Capital:
Shareholders' equity	215,395		148,163
Goodwill and other intangible assets	(63,788	)	(32,906	)
Accumulated other comprehensive loss	4,719		2,859
Tier 1 risk-based capital	156,326		118,116
Eligible allowance for loan losses	4,046		3,403
Total risk-based capital	160,372		121,519
Capital Ratios:
Common Equity Tier 1 Capital to risk-weighted assets	12.65	%	13.07	%
Tier 1 capital to risk-weighted assets	12.65	%	13.07	%
Total capital (tier 1 capital plus tier 2 capital) to risk-weighted assets	12.98	%	13.45	%
Leverage ratio (tier 1 capital to adjusted quarterly average total assets)	9.96	%	9.36	%

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.