Commitments and Contingent Liabilities

6 Months Ended

Jun. 30, 2012

Commitments and Contingent Liabilities [Abstract]

Commitments and Contingent Liabilities

Note 7 - 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 included 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.  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 June 30, 2012 and December 31, 2011 are as follows (in thousands):

		June 30,	December 31,
		2012		2011
Commitments to extend credit:
Commercial loans	$	1,332		3,227
Other loans
Fixed rate		2,560		1,391
Adjustable rate		1,194		2,099
Unused lines of credit:
Fixed rate		3,750		3,883
Adjustable rate		51,966		55,274
Unused Bounce Protection amounts on
demand and NOW accounts		9,772		9,810
Standby letters of credit		5,575		5,575
	$	76,149		81,259

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 June 30, 2012 and December 31, 2011, outstanding guarantees of approximately $546,000 and $546,000, respectively, 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 June 30, 2012 and December 31, 2011 totaled approximately $5.0 million.  The letters of credit have a final maturity date of July 15, 2014, 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 25 offices, purchases of furniture and equipment, and additions or improvements to LCNB's information technology system.  Commitments for capital expenditures outstanding as of June 30, 2012 totaled approximately $70,000.

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.