COMMITMENTS AND CONTINGENT LIABILITIES

12 Months Ended

Dec. 31, 2011

COMMITMENTS AND CONTINGENT LIABILITIES [Abstract]

COMMITMENTS AND CONTINGENT LIABILITIES

NOTE 11 -    COMMITMENTS AND CONTINGENT LIABILITIES

The Company 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 Company 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.

The Company 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 (000's):

	2011		2010
Commitments to extend credit:
Commercial loans	$	3,227		1,856
Other loans:
Fixed rate		1,391		1,200
Adjustable rate		2,099		480
Unused lines of credit:
Fixed rate		3,883		1,773
Adjustable rate		55,274		67,038
Unused overdraft protection amounts on demand and NOW accounts		9,810		10,031
Standby letters of credit		5,575		6,528
	$	81,259		88,906

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.  At December 31, 2011 and 2010, outstanding guarantees of approximately $546,000 and $998,000, respectively, were issued to various types of businesses.  These guarantees generally are fully secured and have varying maturities.  In addition, the Company has a participation in four letters of credit securing payment of principal and interest on a bond issue.  The participation amounts at December 31, 2011 and 2010 totaled approximately $5.0 million and $5.5 million, respectively.  The letters of credit have a final maturity date of July 15, 2014, as extended.

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.

The Company and its subsidiaries 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.