LCNB Corp
Annual Report 2009

Plain-text annual report

Investing In Our Communities 2009 Annual Report Letter To Our Shareholders Dear Shareholders: LCNB’s philosophy of investing in our communi- ties has always been an important part of our his- tory and an important part of being a good corporate citizen. That investment has been in the form of mone- tary donations, donation of food and clothing, and vol- unteering manpower. While to our that commitment communities has always been present, it took on a higher priority in 2009. The recession and resulting high unemployment resulted in a greater need for help in our communities. As you will read later in this report, LCNB and all of its employees responded to the challenge. Steve Wilson The theme of last year’s annual report was “Strong – Local – Secure”. We remain a strong and secure financial institution today. The growth momentum we experienced in 2008 continued through 2009. Our assets grew by 13.03% from $650 million to $734 million. Adding the bank’s assets to trust assets of $197 million, mortgage loans serviced of $57 million, business cash man- agement assets of $18 million, and brokerage ac- count assets of $72 million resulted in the corporation managing a total of $1.1 billion of as- sets for its customers. Specifically, deposits grew 8.06% from $578 million to $624 million. Since consumer confidence continued to be low in 2009, overall loan growth was only 1.35%. But while consumer confidence waned, commercial loan growth was 6.85% growing from $213 mil- lion to $228 million in 2009. The net loan totals do not reflect that LCNB originated $28 million in additional 1-4 family residential mortgages that were sold in the secondary mortgage market en- abling our customers to take advantage of lower mortgage rates. income available to Net shareholders was $6.7 mil- lion representing a 1.07% re- turn on average assets and a 10.43% return on average shareholder’s equity. Basic earnings per common share were $1.00 in 2009 com- pared to $.99 in 2008. Total shareholder’s equity on De- cember 31, 2009 was $65.6 million. Our capital remains Steve Foster in the FDIC “well capitalized” designation. We have the capital, liquidity, earnings, asset quality, and growth to out-perform our industry in both the short and long run. While many financial institutions reduced or ceased paying a dividend in 2009, LCNB main- tained a dividend of $.64 per share. LCNB re- turned earnings to its shareholders with a dividend payout ratio of 64% in 2009. We cannot control our stock price in these emotional times, or any- time, but we can control our performance. In the long run we believe good performance and strong dividend payout will enhance shareholder value. Because of the many bank failures in 2009 (140) the Federal Deposit Insurance Corporation’s Des- ignated Reserve Ratio fell below the minimum of 1.15%. Because of this shortfall the FDIC required all insured banks to pay a special assessment. LCNB paid an assessment (based on Total Assets less Tier One Capital) of $325,000 in addition to A N N U A L R E P O R T 2 0 0 9 1 I n v e s t i n g i n o u r c o m m u n i t i e s Letter To Our Shareholders a higher premium. In total LCNB expensed $1.3 million in FDIC premiums for 2009 compared to $75,000 in 2008. The FDIC then required insured financial institutions to prepay premiums for the next three years on December 30, 2009. That pre- payment resulted in LCNB paying over $3.1 mil- lion to the FDIC. This prepayment by all insured banks provided the FDIC with over $45 billion in cash to pay for anticipated bank failures. LCNB management still believes that the FDIC deposit guarantee is very important to the stability of our banking system, but the cost of doing business by healthy banks has risen significantly because of the mismanagement of some financial institutions. Our Board of Directors is made up of individuals that contribute to the success of LCNB. Joseph W. Schwarz is a director who started contributing at the very first board meeting he attended. While Joe has been a director for the last six years, LCNB has grown from a $524 million bank to a $734 million bank. Joe brought his success in his own business and applied it to banking. His guid- ance and leadership will be missed as he is retir- ing from the board at this year’s Annual Meeting. On February 6, 2010 we lost a former director who retired from the board in 2004. Jim Miller served as a member of the Board from 1979 to 2004. Jim was a valuable director and a fine gen- tleman to everyone who knew him. Jim was highly respected in the Lebanon community and he will be missed. Uncertainty is the watchword for 2010. The economy is still very weak with high unemploy- ment and low consumer confidence levels. Con- gress is having trouble passing legislation and bank failures are predicted to remain high. Continued LCNB will continue to do what we have done since 1877, provide safety for our depositors and loan money to those we know in our local com- munities. The experienced management of LCNB will strive to make 2010 another successful year. Your Board of Directors, officers, and employees understand that financial market concerns are still present and that the downturn in our econ- omy is severe and unlikely to improve in the near term. Yet, we enter 2010 with high expectations for continued growth and prosperity. The chal- lenges are many but so are the opportunities. We are positioned with financial strength, a great market area, the right products, delivery chan- nels, technology, and most important of all, the people to move successfully into the future. Additional statistical data and information on our financial performance for 2009 is available in the LCNB Corp. Annual Report on Form 10-K. This report is filed annually with the Securities and Exchange Commission. 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 on our website, www.LCNB.com. The Annual Meeting for LCNB Corp. will be Tuesday, April 20, 2010 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 9 2 I n v e s t i n g i n o u r c o m m u n i t i e s Board of Directors Stephen P. Wilson Chairman of the Board Chief Executive Officer Kathleen Porter Stolle 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, Donald L. Beckett Retired President, Dakin Insurance Agency, Inc. Vincent B. Fullan Vice President, Phillip R. Hines Vice President, 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 9 3 I n v e s t i n g i n o u r c o m m u n i t i e s Investing In Ou Over the years, we have shared the story of LCNB National Bank’s founding in 1877 as a “safe haven” for Warren County residents and businesses from the unscrupulous “Wildcat Banks” that sprang up like ragweed after the Civil War. These store front banks promised the unsuspecting public a secure place to put their money. And, as quickly as they opened, they left town without a trace. Small savers were not the only victims. Even the cautious Shakers lost a substantial sum of $7,568 (equivalent to almost $200,000 today). From this “safe haven” philosophy of our founders has grown the “Invest in our Communities” mission that LCNB practices today. The times may be different but the goals of the bank are the same–give customers a secure place to deposit their money and invest in each of our communities through leadership, loans, donations and service. It is important to us to lend money responsibly to local residents and businesses so they can grow their equity and build for a secure financial future.This is what our founders had in mind when they opened their doors 132 years ago. “Investing in our commu- nities” is not just a saying, but a philoso- phy which yields real-life success stories that span generations and builds share- holder value. Once again, in 2009 LCNB National Bank was sought out as a “safe haven”. This was especially important in light of the volatile economy and stock markets of the past two years. Our customers knew they could depend on us to safe- guard their savings while also continuing to invest in their communities. We are proud to say that LCNB Corp., LCNB National Bank, Dakin Insurance Agency, Inc., and all of our 278 dedicated employees unselfishly answered this call. Volunteering as a team and individually We are proud to support hundreds of non-profit organizations, schools, churches, and service clubs throughout the six counties we serve. This is achieved through personal service time, financial donations, and volunteer leadeship. The projects range from sponsoring company- wide blood drives, to building homes with Habitat For Humanity, to speaking to students of all ages about the importance of saving and establishing good credit. Sometimes the volunteer effort is simply being part of a community event. You can be assured that if any of our com- munities are having a parade or celebration, you will find our employees there. ur Communities Donations for the greater good of our communities The economy has shaken the foundation of our not for profit communities. Finances have become tight and giving has declined. We anticipated this and planned accordingly. LCNB continues to be a strong supporter in United Way campaigns through donations and providing year-round leadership. We continue to supply a number of organizations with both contributions and volunteer effort. Sometimes our donations are offered in unique ways. For example, in August LCNB decided to bring attention to the problem of the over-stressed food pantry network in Southwestern Ohio. So, LCNB promoted the message “Support Your Local Food Pantry” by using 45 outdoor billboards, eight newspa- pers, and commercials on television, radio, and cable. The promotion began in September to remind everyone that the need for food donations is ongoing and not just during the holidays. The response is still being felt and the goodwill generated was humbling. We Have Money to Lend In 2009, LCNB National Bank was one of the few regional financial institutions that aggressively promoted “We have Money to Lend”. Our responsible lending philosophy over the years gave us a great advantage over those who were not responsible. This means that our customers can be confi- dent as they build for their future because they can depend on their bank for their lending needs. Our city, town- ship, and county government customers are also comforted in their knowledge that, if they need funding, LCNB will be there for them. In 2008, the U.S. Treasury Department asked profitable and secure banks, like us, to help distribute monies through lending programs in order to help stimulate the stalled economy. LCNB did as asked and distrib- uted $63.9 million in home loans, $60.3 million in loans to businesses and $47.8 million in loans to municipal governments. We also supported the national mortgage markets with purchases of over $33.5 million of government guaranteed mortgage securities. LCNB repaid the Treasury’s investment in full in October 2009. The request by the U.S. Treasury was viewed by us as our duty. We are glad to have helped make a difference. (800) 344-BANK LCNB Officers Name Years with LCNB Title Years of Related Experience Name Years with LCNB Title Years of Related Experience Main Office 35 Stephen P. Wilson Steve P. Foster 33 D.J. Benjamin Jackson 36 32 Bernard H. Wright, Jr. 27 Matthew P. Layer 22 Eric J. Meilstrup 18 Robert C. Haines, II 14 Leroy F. McKay 27 Kenneth R. Layer 23 Ann M. Smith 20 Timothy J. Sheridan 31 Ralph D. Mattingly 23 Brian N. Bausmith 9 Stephen P. Anglin 8 Deborah G. Stevens 7 Connie A. Sears 3 John Rost 1 Nathan Sachritz 33 Beverly K. Taylor Patricia D. Mitchell 31 Steven C. Lautenslager 20 15 Sherry L. Jackson 11 Jeffrey L. Davis 5 Peter G. Berninger 4 Roger P. Mersch 2 Bradley A. Ruppert 1 Ed Hale 24 Melanie K. Crane 23 Mary Lynn Johnson 17 Rhonda G. Wetzig 9 Mary Jane Mayer 2 Steven Pomeroy 6 Simone Payne 15 Karen Day 18 S. Diane Ingram Chairman & CEO 38 36 President 41 Sr. Executive VP 35 Sr. Executive VP 27 Executive VP 22 Executive VP 18 Executive VP 24 Executive VP 27 Senior VP 23 Senior VP 33 Senior VP 38 Vice President 23 Vice President 31 Vice President 33 Vice President 22 Vice President 27 Vice President 30 Vice President 33 Assistant VP 31 Assistant VP 20 Assistant VP 15 Assistant VP 11 Assistant VP 27 Assistant VP 26 Assistant VP 11 Assistant VP 35 Assistant VP 24 Trust Officer 23 Assistant Cashier 17 Assistant Cashier 28 Assistant Cashier 26 Assistant Cashier Assistant Cashier 6 15 Assistant Cashier Asst. Trust Officer 18 Centerville Daniel H. Nielsen Colerain Township Judith Neiheisel Randy Bernhardt Columbus Ave. David W. Witham Fairfield Patricia Q. Partch 2 3 3 Vice President 33 Assistant VP Assistant VP 27 25 45 Vice President 45 6 Assistant Cashier 24 31 31 33 22 20 21 21 29 20 11 Goshen Kimberly J. Johnson 29 Assistant VP Hamilton David R. Theiss Hunter Tammy S. Murray 11 Vice President 10 Assistant Cashier 11 Loveland Harry E. Campbell, Jr. 33 Vice President Maineville Karen M. Cramer Mason Kimberli R. Layer Middletown John E. Wetzig, III Oakwood P. Stanley Castleman Kelly Haworth Lisa E. Emmel Rebecca M. Roess Okeana Lenora Schoultheis Oxford Annie S. Joseph Roachester Pauletta I. Sears Terry Howard Springboro William E. Childers Teresa A. McCurley South Lebanon Amy L. Butler Christina L. Harris Waynesville Lonnie D. Schear Patricia S. Hogan Wilmington M. Teresa Jenkins 22 Assistant VP 20 Assistant VP 21 Assistant VP 4 1 4 1 Vice President Vice President Assistant Cashier VP Trust Officer 12 Assistant Cashier 39 4 Assistant Cashier 12 21 20 11 21 18 14 12 19 Vice President Assistant Cashier Assistant VP Assistant VP Assistant VP Assistant Cashier Vice President Assistant VP 38 20 14 21 18 14 36 19 6 Assistant Cashier 36 A N N U A L R E P O R T 2 0 0 9 6 I n v e s t i n g i n o u r c o m m u n i t i e s Financial Highlights For the Years Ended December 31, Income Statement Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income available to common shareholders . . . . . . . . . . . . . . . . Earnings per common share: Basic(1) Diluted(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends declared per common share(1) . . . . . . . . . . . . . . . . . . . . . Balance Sheet Loans – net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Per common share: 2009 $ 24,795 7,766 6,658 1.00 0.99 0.64 $457,418 678,055 734,409 624,179 14,265 24,960 65,615 (Dollars in thousands, except per share data) 2006 2008 2007 20,929 6,603 6,603 0.99 0.99 0.64 451,343 599,825 649,731 577,622 2,206 5,000 58,116 18,153 5,954 5,954 0.94 0.94 0.62 444,419 550,733 604,058 535,929 1,459 5,000 56,528 18,315 6,514 6,514 1.00 1.00 0.60 388,320 505,485 548,215 478,615 15,370 - 50,999 2005 18,570 6,705 6,705 1.01 1.01 0.58 357,651 498,396 539,501 481,475 1,031 2,073 52,022 Book value at year end(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.81 8.69 8.45 7.99 7.94 Performance Ratios Return on average assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Return on average shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . 1.07% 10.43% 1.03% 11.35% 1.08% 11.41% 1.19% 12.48% 1.25% 12.80% (1)All per share data have been adjusted to reflect a 100% stock dividend accounted for as a stock split in 2007. 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment securities: Available-for-sale, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Held-to-maturity, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Federal Reserve Bank and Federal Home Loan Bank stock, at cost Loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Premises and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 Dec. 31, 2009 and 2008 . . . Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Treasury shares at cost, 758,282 shares at December 31, 2009 and 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated other comprehensive income (loss), net of taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL SHAREHOLDERS’ EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2009 $ 12,626 – 12,626 201,578 13,030 3,031 457,418 15,722 5,915 14,122 10,967 $734,409 $93,894 530,285 624,179 14,265 24,960 5,390 668,794 – 11,068 15,407 48,962 (11,737) 1,915 65,615 2008 11,278 6,742 18,020 136,244 – 3,028 451,343 15,582 5,915 13,485 6,114 649,731 82,645 494,977 577,622 2,206 5,000 6,787 591,615 – 11,068 14,792 46,584 (11,737) ( 2,591) 58,116 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $734,409 649,731 A N N U A L R E P O R T 2 0 0 9 7 I n v e s t i n g i n o u r c o m m u n i t i e s 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FDIC premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ATM expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Computer maintenance and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Telephone expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Write-off of pension asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other non-interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL NON-INTEREST EXPENSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PROVISION FOR INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PREFERRED STOCK DIVIDENDS AND DISCOUNT ACCRETION . . . . . . . . . . . . . . . . . . . . . . NET INCOME AVAILABLE TO COMMON SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . 2009 $27,493 153 4,239 2,921 49 34,855 9,434 3 623 10,060 24,795 1,400 23,395 1,916 4,018 110 1,511 637 396 184 8,772 9,422 2,306 1,017 1,721 611 443 110 1,271 513 466 410 722 3,103 22,115 10,052 2,286 7,766 1,108 $ 6,658 Earnings per common share: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.00 0.99 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 75 456 471 442 – 3,103 19,934 8,828 2,225 6,603 – 6,603 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 57 401 418 424 – 2,700 18,344 7,889 1,935 5,954 – 5,954 0.94 0.94 Weighted average shares outstanding: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,687,232 6,701,309 6,687,232 6,687,232 6,368,046 6,368,563 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, 2009 and 2008, 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, 2009; and in our report dated February 22, 2010 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 mate- rial respects, in relation to the consolidated financial statements from which it has been derived. Cincinnati, Ohio February 22, 2010 A N N U A L R E P O R T 2 0 0 9 8 I n v e s t i n g i n o u r c o m m u n i t i e s 

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