Letter To Our Shareholders Dear Shareholders: The theme of this year’s annual report is “Strong – Local – Secure”. Through the years these principles have been the cornerstone of your Bank. And, during these turbulent times, these principles have more meaning than ever. Sometimes, amid turmoil, opportunities become available and LCNB has fared better than many of our fellow financial institutions. Our conservative philosophy concerning tradi- tional banking has served us well. We are in a position to not only survive but to prosper in these difficult times. We have the capital, liquidity, earnings, asset quality, and growth to out-perform our industry in both the short and long run. Steve Wilson Since the bank was established in 1877 this country has experienced many good and bad economic cycles and LCNB has been a trusted source of financial strength for the communities we serve. The year 2008 was no excep- tion. LCNB has always felt that part of its mission is to protect the money its depositors entrust to it. That means making responsible lending and investment decisions. LCNB’s lending area is in the communities that it has offices and where its employees live. We know our customers and we know the local economies. We cannot control our stock price in these emotional times, or anytime, but we can control our performance. In the long run we believe good performance will enhance shareholder value. With that thought in mind we are pleased to present to you our performance results for 2008. The year 2008 was a growth year for LCNB. Total assets grew by 7.56% from $604 million to $650 million. Contributing to that growth was a 7.78% increase in deposits from $535.9 million to $577.6 million. LCNB’s financial strength contributed to that deposit growth with the depositors’ flight to quality. Growth in the loan portfolio was more difficult. Consumer confidence declined and the desire to borrow declined as well. In spite of this, the loan portfolio grew 1.56% in 2008, and commercial loans grew by $16.5 million or 8.39%. Net income for 2008 was $6.6 million representing a 1.03% return on average assets and an 11.35% return on average shareholders’ equity. Earnings per share were $.99 in 2008 compared to $.94 in 2007. Total shareholders’ equity on December 31, 2008 was $58.1 million. Our capital remains strong and it is our position to maintain the FDIC “well capi- talized” designation. Steve Foster The total dividend paid in 2008 was $.64 per share compared to $.62 in 2007. Under current tax laws we feel that maintaining a strong dividend is in the best interest of our shareholders. One of the greatest assets of LCNB is the people who work here. LCNB has a strong and experienced management team guiding excellent employees. Throughout 2008 the LCNB employees fielded countless questions that ranged from “What is the financial strength of the bank?”, “How does FDIC insurance work for me?”, “Should I take my money out of the bank?” to “What is going to happen next?” Declining confidence in the financial markets and daily negative headlines led customers to the bank to ask many questions. The LCNB employees spoke with confi- dence to our customers and reassured them that LCNB was still safe, sound and secure. During 2008 we had to make one of the most difficult decisions of our collective careers. That decision was to accept the U.S. Treasury’s Capital Purchase Program offer of 13.4 million dollars in exchange for preferred shares of stock and a warrant to purchase common shares. The risks on both sides of that decision were many, including repu- tation risk. At the point of decision we chose to partici- A N N U A L R E P O R T 2 0 0 8 1 S T R O N G • L O C A L • S E C U R E Letter To Our Shareholders pate and take the additional capital. We received that capital January 9, 2009, so the results of that transac- tion are not reflected in our 2008 numbers. We do believe that this subsequent event deserves discussion in this letter due to the magnitude of that decision. The bottom line is we believe taking the capital injection is in the best interest of our shareholders. Our risk-based capital ratio increased almost 3% to give us enhanced capital strength during a time when capital is king and other capital sources are not available or are more expensive. The four primary benefits of accepting the capital are: 1. As a way to increase our lending and help the communities and customers we serve meet today’s challenges. 2. As an insurance policy against a total meltdown of our economy. 3. As a source of strength when opportunities are presented to us. 4. As a recognition of LCNB’s financial strength, because these funds were granted only to financially secure banks. During 2008 we added a second Montgomery County branch with the opening of our new Centerville office. This brings us to 25 offices serving six counties in Southwestern Ohio. We also made the decision to relocate our South Lebanon office. South Lebanon was our first branch office which opened in 1962. This new location will better serve our existing customers and will also be attractive to a wider area and larger customer base. 2008 was a very good year in terms of improving our oper- ational efficiencies. The primary example was the full implementation of our Check 21 project, improving the time it takes to receive our money in the check clearing process. We have always given our customers next-day availability on their deposits. The traditional paper collec- tion process did not allow us that luxury. It would histor- ically take us several days to receive our funds. With Check 21, we collect electronically with check images, not the paper. This greatly improves the time it takes to collect Continued our funds. We also employed this image technology to allow our customers to deposit check images instead of paper. This new product, called R.E.D., has been well received, especially by customers not conveniently located near one of our 25 offices. This image technology also saved significant dollars in the cost of couriers, courier vehicles, and fuel cost. Using the latest technology continues to be one of our strengths. This allows us to provide several delivery channel options to our customers so they may bank how they want and when they want, 24/7. Your Board of Directors, officers, and employees under- stand that financial market concerns are still present and that the downturn in our economy is severe and unlikely to improve in the near term. Yet, we enter 2009 with high expectations for continued growth and prosperity. The challenges are many but so are the oppor- tunities. We are positioned with financial strength, a great market area, the right products, delivery channels, tech- nology, and most important of all, the people to move successfully into the future. Additional statistical data and information on our financial performance for 2008 are available in the LCNB Corp. Annual Report on Form 10-K. This report is filed annually with the Securities and Exchange Commis- sion. We have enclosed the Form 10-K with the initial mailing of this report to shareholders and it is available upon request or from the shareholders information section of our website, www.LCNB.com. The Annual Meeting for LCNB Corp. will be Tuesday, April 28, 2009, at 10:00am at our Main office located at 2 North Broadway in Lebanon, Ohio. Proxy material is included with this initial mailing. Please review, sign and return the proxy in the envelope provided. We would be pleased to have you attend our annual meeting in person. Thank you for your continued support. Stephen P. Wilson Chairman and CEO Steve P. Foster President A N N U A L R E P O R T 2 0 0 8 2 S T R O N G • L O C A L • S E C U R E Board of Directors Stephen P. Wilson Chairman of the Board Chief Executive Officer KathleenPorterStolle Attorney William H. Kaufman Attorney Spencer S. Cropper Certified Public Accountant Stolle Properties, Inc. David S. Beckett President Dakin Insurance Agency, Inc. Joseph W. Schwarz Managing Member J-II Enterprises, LLC George L. Leasure President Ghent Manufacturing, Inc. Rick L. Blossom Managing Partner Reality Check, LLC Steve P. Foster President Stephen P. Wilson Chairman of the Board Chief Executive Officer Kathleen Porter Stolle Attorney George L. Leasure President, Ghent Manufacturing, Inc. William H. Kaufman Attorney Spencer S. Cropper Certified Public Accountant, Stolle Properties, Inc. David S. Beckett President, Dakin Insurance Agency, Inc. Joseph W. Schwarz Managing Member, J-II Enterprises, LLC Rick L. Blossom Managing Partner, Reality Check, LLC Steve P. Foster President Stephen P. Wilson Chaiman of the Board, CEO – LCNB David S. Beckett President, Dakin Insurance Agency, Inc. Donald L. Beckett Retired President, Dakin Insurance Agency, Inc. Vincent B. Fullan Vice President, Dakin Insurance Agency, Inc. Phillip R. Hines Vice President, Dakin Insurance Agency, Inc. John C. George President, George Steel Fabricating, Inc. Steve P. Foster President, LCNB D.J. Benjamin Jackson Sr. Executive Vice President, LCNB Bernard H. Wright, Jr. Sr. Executive Vice President & Trust Officer, LCNB A N N U A L R E P O R T 2 0 0 8 3 S T R O N G • L O C A L • S E C U R E We continue to thrive du We’re Strong. The foundation of our strength is with our customers, shareholders an tional and state-of-the-art financi which is a result of years of profita We’re Local. We are a community bank! Every offic part of each community from the very charities and business clubs. Many of o these volunteer efforts. Our customers local financial institution, we are comm We’re Secure. Security is not a negotiable item! D investment world. We have never a way of life. For example, in the 18 our customers’ money would be se the bank and our customers. The old saying, “those who do not learn from history are bound to repeat it” still applies today. Throughout our 131 years of history we have witnessed the effects that financial markets and global events have had on our customers. We do not have control over economic bubbles, wars, depressions or recessions, but they directly affect our customers, shareholders, and employees. What we do control is the ability to provide a safe and secure place for our customers’ finances. At LCNB, we have learned from these events and remain committed to the same principles upon which we were founded. Our founders kept LCNB’s mission simple . . . provide each of our customers a strong, local and secure place to deposit their money; provide responsible loans that make uring these times because... built upon our strong asset quality, the dedication of our 246 employees, and great partnerships nd the communities we serve. It also includes unmatched personal service, customer retention, tradi- ial products, and carefully planned expansion. Additionally, LCNB has $58 million in capital, able operation. ce is located in an area in which we are familiar and know how to serve effectively. We become a first day that we open our doors. Our personnel actively volunteer for local service organizations, our officers and staff live in these communities and work side by side with our customers within ’ deposits remain local and are reinvested in the communities we serve in the form of loans. As a mitted to lead by example to make our communites better places to live, work, and raise families. During boom times security is waved off as unimportant by many in the financial, insurance and adopted this point of view. We’ve always considered security important. For LCNB, security is a 00s, long before FDIC insurance existed, our founders purchased a 6000 lb. safe that guaranteed ecure. Today, security includes making responsible loans that make good business sense for both good economic sense for both the bank and the borrower; and represent financially sound insurance companies which will be there in case of a claim. Their plan further stated that they would offer their shareholders strong value, regular dividends and, most impor- tantly, hire and retain great people. This is why, today, we continue to be strong, local and secure. As we leave 2008 and enter 2009, LCNB Corp., LCNB National Bank and Dakin Insurance Agency, Inc. will continue to be a ‘safe haven’ for our customers. We will provide responsible loans to our personal and commercial customers. We will provide insurance against personal risk. We will continue to thrive while building value for our shareholders, customers, and employees. Just like our founders planned in 1877. LCNB Officers Name Years with LCNB Title Years of Related Experience Name Years with LCNB Title Years of Related Experience Main Office 34 Stephen P. Wilson Steve P. Foster 32 D.J. Benjamin Jackson 35 Bernard H. Wright, Jr. 31 27 Matthew P. Layer 21 Eric J. Meilstrup 17 Robert C. Haines, II 13 Leroy F. McKay 27 Kenneth R. Layer 22 Ann M. Smith 19 Timothy J. Sheridan 30 Ralph D. Mattingly 27 Jeffrey S. Sempsrott 22 Brian N. Bausmith 8 Stephen P. Anglin 7 Deborah G. Stevens 6 Connie A. Sears 32 Beverly K. Taylor Patricia D. Mitchell 30 Steven C. Lautenslager 19 14 Sherry L. Jackson 10 Jeffrey L. Davis 5 Lee Ann Conley 4 Peter G. Berninger 3 Roger P. Mersch 1 Bradley A. Ruppert 23 Melanie K. Crane 28 Marilyn S. Blanton 22 Mary Lynn Johnson 16 Rhonda G. Wetzig 14 Marcia G. Dalton 1 Steven Pomeroy 17 S. Diane Ingram Chairman & CEO 37 35 President 40 Sr. Executive VP 34 Sr. Executive VP 27 Executive VP 21 Executive VP 17 Executive VP 23 Executive VP 27 Senior VP 22 Senior VP 32 Senior VP 37 Vice President 27 Vice President 22 Vice President 30 Vice President 32 Vice President 21 Vice President 32 Assistant VP 30 Assistant VP 19 Assistant VP 14 Assistant VP 10 Assistant VP 28 Assistant VP 26 Assistant VP 25 Assistant VP 10 Assistant VP 23 Trust Officer 35 Assistant Cashier 22 Assistant Cashier 16 Assistant Cashier 17 Assistant Cashier Assistant Cashier 25 Asst. Trust Officer 17 Centerville Daniel H. Nielsen Colerain Township John Calhoun John Rost Judith Neiheisel Randy Bernhardt Columbus Ave. David W. Witham Fairfield Patricia Q. Partch 1 2 2 2 2 Vice President Executive VP Vice President Assistant VP Assistant VP 44 Vice President 32 37 26 26 24 44 5 Assistant Cashier 23 28 30 27 32 21 19 20 13 20 19 Goshen Kimberly J. Johnson 28 Assistant VP Hamilton David R. Theiss Mary Jane Mayer Hunter Tammy S. Murray 10 8 Vice President Assistant Cashier 9 Assistant Cashier 10 Loveland Harry E. Campbell, Jr. 32 Vice President Maineville Karen M. Cramer Mason Kimberli R. Layer Middletown John E. Wetzig, III Christina L. Harris Oakwood P. Stanley Castleman Lisa E. Emmel Okeana Lenora Schoultheis Oxford Annie S. McCowan Roachester Pauletta I. Sears Springboro William E. Childers Teresa A. McCurley South Lebanon Amy L. Butler Waynesville Lonnie D. Schear Patricia S. Hogan Wilmington M. Teresa Jenkins 21 Assistant VP 19 Assistant VP 20 13 3 3 Assistant VP Assistant Cashier Vice President Assistant Cashier 11 Assistant Cashier 38 3 Assistant Cashier 11 20 Vice President 10 20 Assistant VP Assistant Cashier 17 Assistant VP 11 18 Vice President Assistant Cashier 37 13 20 17 35 18 5 Assistant Cashier 35 A N N U A L R E P O R T 2 0 0 8 6 S T R O N G • L O C A L • S E C U R E Financial Highlights For the Years Ended December 31, 2008 2007 2006 2005 2004 (Dollars in thousands, except per share data) Income Statement Net Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Per common share: Net income, basic and diluted(1) . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends declared(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance Sheet Loans – net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Per common share: $ 20,929 6,603 0.99 0.64 $ 451,343 599,825 649,731 577,622 2,206 5,000 58,116 18,153 5,954 0.94 0.62 444,419 550,733 604,058 535,929 1,459 5,000 56,528 18,315 6,514 1.00 0.60 388,320 505,485 548,215 478,615 15,370 - 50,999 18,570 6,705 1.01 0.58 357,651 498,396 539,501 481,475 1,031 2,073 52,022 18,280 6,596 0.98 0.56 334,440 485,485 522,251 463,900 1,269 2,137 52,296 Book value at year end(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.69 8.45 7.99 7.94 7.86 Performance Ratios Return on average assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Return on average shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . 1.03% 11.35% 1.08% 11.41% 1.19% 12.48% 1.25% 12.80% 1.29% 12.56% (1)All per share data have been adjusted to reflect a 100% stock dividend accounted for as a stock split in 2007 and 2004. Condensed Consolidated Balance Sheets At December 31, (Dollars in thousands) ASSETS: Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Federal funds sold and interest-bearing demand deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities available for sale, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Federal Reserve Bank and Federal Home Loan Bank stock, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Premises and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bank owned life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . LIABILITIES: Deposits – Noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued interest and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2008 $ 11,278 6,742 18,020 136,244 3,028 451,343 15,582 5,915 807 13,485 5,307 $ 649,731 $ 82,645 494,977 577,622 2,206 5,000 6,787 591,615 2007 17,498 13,692 31,190 87,423 2,731 444,419 14,205 5,742 1,165 11,452 5,731 604,058 81,397 454,532 535,929 1,459 5,000 5,142 547,530 SHAREHOLDERS’ EQUITY: Preferred shares - no par value, authorized 1,000,000 shares, none outstanding . . . . . . . . . . . . . . . . . . . . . . . . . Common shares - no par value, authorized 8,000,000 shares, issued 7,445,514 at December 31, 2008 and 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Treasury shares at cost, 758,282 shares at December 31, 2008 and 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated other comprehensive income (loss), net of taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL SHAREHOLDERS’ EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 11,068 14,792 46,584 (11,737) (2,591) 58,116 11,068 14,761 44,261 (11,737) (1,825) 56,528 TOTAL LIABILITES AND SHAREHOLDERS’ EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 649,731 604,058 A N N U A L R E P O R T 2 0 0 8 7 S T R O N G • L O C A L • S E C U R E Condensed Consolidated Statements of Income For the years ended December 31, (Dollars in thousands, except per share data) INTEREST INCOME: Interest and fees on loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends on Federal Reserve Bank and Federal Home Loan Bank stock . . . . . . . . . . . . . . . . . . . . . . Interest on investment securities– Taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL INTEREST INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . INTEREST EXPENSE: Interest on deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest on short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest on long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL INTEREST EXPENSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NET INTEREST INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PROVISION FOR LOAN LOSSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES . . . . . . . . . . . . . . . . . NON-INTEREST INCOME: Trust income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Service charges and fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net gain (loss) on sales of securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Insurance agency income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bank owned life insurance income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gains from sales of mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL NON-INTEREST INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NON-INTEREST EXPENSE: Salaries and wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pension and other employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equipment expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Occupancy expense, net State franchise tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intangible amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ATM expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Computer maintenance and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Telephone expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other non-interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL NON-INTEREST EXPENSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PROVISION FOR INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2008 $ 29,024 160 2,642 1,995 529 34,350 13,145 13 263 13,421 20,929 620 20,309 1,861 4,254 – 1,620 534 11 173 8,453 8,888 2,433 995 1,652 639 464 316 456 471 442 3,178 19,934 8,828 2,225 $ 6,603 Earnings per common share: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.99 0.99 2007 27,066 163 2,229 1,879 654 31,991 13,445 181 212 13,838 18,153 266 17,887 1,890 4,103 – 1,627 472 47 207 8,346 8,040 2,125 1,039 1,506 630 429 575 401 418 424 2,757 18,344 7,889 1,935 5,954 0.94 0.94 2006 25,284 189 2,650 1,967 458 30,548 12,113 90 30 12,233 18,315 143 18,172 1,932 4,103 (12) 1,682 464 47 129 8,345 7,860 2,003 1,049 1,370 622 374 621 456 378 324 2,781 17,838 8,679 2,165 6,514 1.00 1.00 Weighted average shares outstanding: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,687,232 6,687,232 6,368,046 6,368,563 6,484,837 6,487,252 Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders LCNB Corp. and subsidiaries We have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of LCNB Corp. and subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of income, and consolidated statements of comprehensive income, shareholders’ equity and cash flows (not included herein), for each of the three years in the period ended December 31, 2008; and in our report dated February 27, 2009 we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated financial statements is fairly stated, in all material respects, in relation to the consolidated financial statements from which it has been derived. Cincinnati, Ohio February 27, 2009 A N N U A L R E P O R T 2 0 0 8 8 S T R O N G • L O C A L • S E C U R E LCNB NATIONAL BANK LOCATIONS AND HOURS MAIN OFFICE 2 North Broadway P.O. Box 59 Lebanon, Ohio 45036 AUTO BANK 36 North Broadway Lebanon, Ohio 45036 BRANCH OFFICES BRIDGETOWN OFFICE 6383 Bridgetown Road Cincinnati, Ohio 45248 CENTERVILLE OFFICE 9605 Dayton-Lebanon Pike (St. Rt. 48) Centerville, Ohio 45458 COLERAIN TOWNSHIP OFFICE 3209 West Galbraith Road Cincinnati, Ohio 45239 COLUMBUS AVENUE OFFICE 730 Columbus Avenue Lebanon, Ohio 45036 FAIRFIELD OFFICE 765 Nilles Road Fairfield, Ohio 45014 GOSHEN OFFICE 6726 Dick Flynn Boulevard (St. Rt. 28 &132) Goshen, Ohio 45122 HAMILTON OFFICE 794 NW Washington Blvd. Hamilton, Ohio 45013 HUNTER OFFICE 3878 State Route 122 Franklin, Ohio 45005 LEBANON HIGH SCHOOL OFFICE 1916 Drake Road Lebanon, Ohio 45036 LOVELAND OFFICE 500 Loveland-Madeira Road Loveland, Ohio 45140 MAINEVILLE/HAMILTON TWP. OFFICE 7795 South State Route 48 Maineville, Ohio 45039 MASON CHRISTIAN VILLAGE 411 Western Row Road Mason, Ohio 45040 MASON/WEST CHESTER OFFICE 1050 Reading Road Mason, Ohio 45040 MIDDLETOWN OFFICE 4441 Marie Drive Middletown, Ohio 45044 OAKWOOD OFFICE 2705 Far Hills Avenue Dayton, Ohio 45419 OKEANA OFFICE 6225 Cincinnati-Brookville Road Okeana, Ohio 45053 OTTERBEIN OFFICE Campus Center Building (St. Rt. 741) Lebanon, Ohio 45036 OXFORD OFFICE 30 West Park Place Oxford, Ohio 45056 ROACHESTER/MORROW OFFICE Route 22-3 at 123 Morrow, Ohio 45152 SOUTH LEBANON OFFICE 209 E. Forest Avenue South Lebanon, Ohio 45065 SPRINGBORO/FRANKLIN OFFICE 525 West Central Avenue (St. Rt. 73) Springboro, Ohio 45066 WAYNESVILLE OFFICE 9 N. Main Street Waynesville, Ohio 45068 WILMINGTON OFFICE 1243 Rombach Avenue Wilmington, Ohio 45177 ELECTRONIC BRANCHES COUNTRYSIDE YMCA 1699 Deerfield Road Lebanon, Ohio 45036 HAMILTON/FAIRFIELD 1502 University Boulevard Hamilton, Ohio 45011 BANKING HOURS All locations (except Mason Christian Village, Okeana, Otterbein & Lebanon H.S.) Monday - Thursday . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-5 Friday . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-6 Saturday . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-1 Drive-Thru open Mon.- Sat. at 8:30 am Mason Christian Village Tuesday and Thursday . . . . . . . . . . . . . . . . . . . . 8:30-10:30 am Wednesday . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2:30-4:30 pm Okeana Mon., Tues., Thurs., Fri. . . . . . . . . . . . . . . . . . . . . . . . . 9-12/1-5 Saturday . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-1 Wednesday . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Closed Otterbein Monday-Thursday . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-12/1-5 Friday . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-12/1-6 Saturday . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Closed PHONE NUMBERS EMBARQ Customers . . . . . . . . . . . . . . . . . . . . (513) 932-1414 AT&T Customers . . . . . . . . . . . . . . . . . . . . . . . (513) 423-9911 Cincinnati Bell Customers . . . . . . . . . . . . . . . . (513) 677-2203 Wilmington Area . . . . . . . . . . . . . . . . . . . . . . . (937) 383-4500 Oxford Area . . . . . . . . . . . . . . . . . . . . . . . . . . . (513) 523-2141 Dayton Area . . . . . . . . . . . . . . . . . . . . . . . . . . . (937) 704-9490 Toll Free . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1-800-344-BANK FAX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (513) 933-LCNB “BANKLINE” — 24-Hour Automated Telephone Banking Service EMBARQ Customers . . . . . . . . . . . . . . . . . . . (513) 932-BANK AT&T/Verison Customers (toll-free) . . . . . . . . . . . . (888) 786-5262 Cincinnati Bell Customers . . . . . . . . . . . . . . . (513) 336-BANK Up-To-The-Minute Time•Temperature•Weather EMBARQ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (513) 932-1111 AT&T Customers . . . . . . . . . . . . . . . . . . . . . . . (513) 727-1010 =F www.LCNB.com DAKIN INSURANCE LOCATIONS MEMBER FDIC MAIN OFFICE: 24 E. Mulberry Street • P.O. Box 89 • Lebanon, Ohio 45036 Cincinnati: (513) 984-5335 Phone: (513) 932-4010 Toll Free: (877)-932-4010 Email: sales@dakin-ins.com Website: www.dakin-ins.com LOVELAND OFFICE 500 Loveland-Madeira Rd. Loveland, Ohio 45140 MAINEVILLE OFFICE 7795 South State Route 48 Maineville, Ohio 45039 MASON OFFICE 1050 Reading Road Mason, Ohio 45040