Commitments and Contingent Liabilities

3 Months Ended

Mar. 31, 2013

Commitments and Contingent Liabilities [Abstract]

Commitments and Contingent Liabilities

Note 9 - 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 consolidated balance sheets.  Exposure to credit loss in the event of nonperformance by the other parties to financial instruments for commitments to extend credit is represented by the contract amount of those instruments.

LCNB offers the Bounce Protection product, a customer deposit overdraft program, which 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 March 31, 2013 and December 31, 2012 are as follows (in thousands):

	March 31,		December 31,
	2013		2012
Commitments to extend credit:
Commercial loans	$	15,170		13,625
Other loans:
Fixed rate		3,039		4,602
Adjustable rate		2,340		1,238
Unused lines of credit:
Fixed rate		3,869		3,368
Adjustable rate		63,375		45,199
Unused overdraft protection amounts on   demand and NOW accounts		9,556		9,665
Standby letters of credit		5,375		5,109
	$	102,724		82,806

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.  Unused lines of credit include amounts not drawn in 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.  At March 31, 2013 and December 31, 2012, outstanding guarantees of approximately $346,000 were issued to developers and contractors.  These guarantees generally are fully secured and have varying maturities.  In addition, LCNB has a participation in four letters of credit securing payment of principal and interest on a bond issue.  The participation amounts at March 31, 2013 and December 31, 2012 totaled approximately $5.0 million and $4.8 million, respectively.  The letters of credit have a final maturity date of July 15, 2015, as extended.

LCNB evaluates each customer's credit worthiness on a case-by-case basis.  The amount of collateral obtained, if deemed necessary, is based on management's credit evaluation of the borrower.  Collateral held varies, but may include accounts receivable; inventory; 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.

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

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