LCNB Corp
Annual Report 2010

Plain-text annual report

In Today’s Economy, This is a Good Sign 2010 Annual Report Letter To Our Shareholders Dear Shareholders: A struggling economy, increased banking regulation, and higher FDIC premiums have made it difficult for some U.S. banks to deliver good results in 2010. LCNB is happy to report that, in spite of those challenges, 2010 was another very successful year and we are proud to present these results in this year’s an- nual report. Steve Wilson The theme of this year’s annual report is, “If LCNB is in your Community... This is a Good Sign.” This refers directly to the importance of a bank to the economic health of any community. A traditional regulated bank, whose success is tied to the success of its cus- tomers and its community is so very important for several reasons. A community bank is the economic engine that enables its customers to create jobs and to create wealth and opportu- nity. It renders advice on how fast to grow and how far to go to ensure that customers are suc- cessful in the long-run. The bank’s value to the community itself goes beyond economic value and provides the power of involvement and sup- port. Support is given by investing time and money in many organizations and events which contribute to the quality of life in a community. It also supports those things, both necessary and nice, that differentiates a community and makes it a great place to live. A successful year is measured in numerous ways. We measure it financially and with the completion of successful projects within the organization. Steve Foster Financially, LCNB earned a return on average assets of 1.22% and a return on average equity of 13.36% in 2010. Net income avail- able to common share- holders in 2010 exceeded 2009 results by 41% result- ing in net income available to common shareholders of $9.4 million. That net income produced total earnings per share of $1.40 which is 40% higher than the $1.00 earnings per share from 2009 results. Although LCNB Corp. total assets grew from $734 million to $760 million in 2010, loan growth was still slug- gish in 2010. Net loans declined 1.11% from 2009 to $452 million. But within that total, commercial loans grew by almost 2% and we have originated or refinanced $19 million in 1-4 family mortgages for consumers taking advan- tage of the low interest rate environment in 2010. Another $24 million of 1-4 family mort- gages were originated and sold in the secondary market during 2010. The Trust and Brokerage Departments both had 14% growth in assets they manage for our customers and deposits continued to grow in 2010 to $639 million. Total shareholder’s equity on December 31, 2010 was $70.7 million. Our capital remains in the “well capitalized” designation. A N N U A L R E P O R T 2 0 1 0 1 a g o o d s i g n Letter To Our Shareholders LCNB Management and the Board of Directors believe continuing to pay a dividend to our shareholders is important. During 2010 our shareholders received a dividend of $.64 per share. LCNB returned earnings to its sharehold- ers of 46% in 2010. In addition to the successful year financially, our employees also were busy improving delivery channels for our customers. We started upgrad- ing our ATM machines to newer models in 2010 and this project will continue in 2011. Because of the constant threat of dishonest people trying to exploit our electronic delivery channels, we have added additional firewalls and other more secure ways that our customers can access their bank information and transact business elec- tronically. We will always strive to maintain the latest security measures to protect our custom- ers’ information. Although we did not build or acquire any new facilities in 2010, we began con- struction of a new branch in the City of Monroe and the new Auto Bank in Lebanon. Both proj- ects should be complete by late Spring of 2011. In November, Dave Beckett, a director of LCNB since 1999 and President of Dakin Insurance Agency, a subsidiary of LCNB Corp., announced that he and his family planned to relocate to an- other state. We are sorry to lose Dave as a direc- tor and as president of Dakin Insurance. He has very competently fulfilled both roles. The LCNB Board of Directors decided not to fill the vacant director’s seat at this time. In addition, the LCNB Board of Directors decided to divest of Dakin Insurance by selling the agency. Continued Additional statistical data and information on our financial performance for 2010 is available in the LCNB Corp. Annual Report on Form 10-K. This report is filed annually with the Se- curities 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 informa- tion section on our website, www.LCNB.com. The Annual Meeting for LCNB Corp. will be Tuesday, April 26th, 2011 at 10:00 a.m. at our Main Office located at 2 North Broadway in Lebanon, Ohio. Proxy material is included with this initial mailing. Please review, sign and re- turn the proxy in the envelope provided. We would be pleased to have you attend our annual meeting in person. Thank you for your contin- ued support. Stephen P. Wilson Chairman and CEO Steve P. Foster President Please Note: “In the spirit of service to our com- munities and profession, Steve Wilson continues to demonstrate his dedication to the banking industry. He served as chairman of the Ohio Bankers League (OBL) in 1997 and, beginning in October 2010, Steve is serving as Chairman of the American Bank- ers Association (ABA). It is a prestigious honor that Steve has been given to represent our banking industry and his leadership and experience is important to banking at this cru- cial time.” – Steve P. Foster A N N U A L R E P O R T 2 0 1 0 2 a g o o d s i g n 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. Anne E. Krehbiel Attorney 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. Anne E. Krehbiel Attorney 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 1 0 3 a g o o d s i g n In Today’s Economy, This is a Good Sign. LCNB National Bank’s history is deeply rooted in the soil of supporting memorable Hometown events. The Bank was founded in Lebanon over 134 years ago in what was then a rural farming com- munity. These events or gatherings were the only times during the year that its hardworking residents could come together to socialize and celebrate the community. The Bank believes that sponsoring these events is important in any economy. They show first-hand the economic health of the commu- nity. They also build traditions with families, friends and neighbors. It seems as if the entire community was there—smiling, laughing and working side by side. And they were. Just about everyone was there—including LCNB National Bank and our employees. business, wealth building, investing for retirement and much, much more. As the community’s “economic engine,” the Bank must also serve local public institutions and governments, as only a local bank can. And during a difficult economy, LCNB is trusted to find unique so- lutions that keep the community moving forward, responsibly. The Bank accomplishes this by buying local bonds and investing in mort- gage securities. These financial instruments directly help our local governments, schools and also encourage home ownership. While we offer the financial tools and unique solutions to stimulate the local economy, the Bank also provides a strong, local and secure place for our customers to grow and safeguard their money. This is a philosophy we were founded upon and it serves us well today in light of the continued turmoil facing the financial markets. Being a supporter of these tradition-rich events is only one of the Bank’s responsibilities to the communities it serves. Our primary role is to serve as the “economic engine” that stimu- lates the local economy. LCNB accomplishes this by offering the financial tools that our customers can use to achieve their own personal goals of success. These goals are different for everyone. They may include home ownership, starting or expanding a In the Spring of this year, we will be opening our 26th office in the hometown community of Monroe. When this new LCNB office is built, and the big ‘green and white’ sign is turned on, everyone will know This is a Good Sign—a sign of prosperity and success. . . backed by a lot of tradition. LCNB is a community bank. We are dedicated to the success of our customers, communities, shareholders and employees. Their success is our success. That says it all! We believe that the 20 citizens who founded LCNB in 1877 would be very proud of the Bank in 2011. 4 5 LCNB Officers Name Years with LCNB Title Years of Related Experience Name Years with LCNB Title Years of Related Experience Chairman & CEO 39 Amy L. Butler 19 Assistant VP Stephen P. Wilson Steve P. Foster 36 34 President D.J. Benjamin Jackson 37 Sr. Executive VP Bernard H. Wright, Jr. 33 Sr. Executive VP Robert C. Haines, II Matthew P. Layer Leroy F. McKay Eric J. Meilstrup Kenneth R. Layer Timothy J. Sheridan Ann M. Smith Stephen P. Anglin Brian N. Bausmith 19 28 15 23 28 21 24 10 24 Executive VP Executive VP Executive VP Executive VP Senior VP Senior VP Senior VP Vice President Vice President Harry E. Campbell, Jr. 34 Vice President P. Stanley Castleman Kelly Haworth Kimberli R. Layer Ralph D. Mattingly Dan H. Nielsen Rebecca H. Roess John Rost Bradley A. Ruppert Nathan Sachritz Lonnie D. Schear Connie A. Sears Pauletta I. Sears Deborah G. Stevens David R. Theiss Melanie K. Crane S. Diane Ingram 5 2 21 32 3 2 4 3 2 13 8 22 9 12 25 19 Vice President Vice President Vice President Vice President Vice President VP/ Trust Officer Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Trust Officer Trust Officer Randy Bernhardt 4 Assistant VP Peter G. Berninger 6 Assistant VP 37 42 36 19 28 25 23 28 34 24 32 24 34 22 30 21 39 34 12 28 12 31 37 23 39 34 32 25 19 26 28 William E. Childers 12 Assistant VP Karen M. Cramer 23 Assistant VP Jeffrey L. Davis 12 Assistant VP Lisa E. Emmel 5 Assistant VP Ed Hale 2 Assistant VP Patricia S. Hogan 20 Assistant VP Sherry L. Jackson 16 Assistant VP Kimberly J. Johnson 30 Assistant VP Steven C. Lautenslager 21 Assistant VP Michael Lavatori 8 Assistant VP Teresa A. McCurley 22 Assistant VP Roger P. Mersch 5 Assistant VP Patricia D. Mitchell 32 Assistant VP Judith Neiheisel 4 Assistant VP Beverly K. Taylor 34 Assistant VP John L. Torbeck 1 Assistant VP John E. Wetzig, III 22 Assistant VP 19 15 23 12 21 36 20 16 32 21 22 22 27 32 28 34 25 22 Karen A. Day 16 Assistant Cashier 16 Christina L. Harris 15 Assistant Cashier 15 Terry J. Howard 21 Assistant Cashier 21 Kimberly B. Isaacs 15 Assistant Cashier 15 Mary Lynn Johnson 24 Assistant Cashier 24 M. Teresa Jenkins 7 Assistant Cashier 37 Annie S. Joseph 5 Assistant Cashier 13 Tammy S. Murray 11 Assistant Cashier 12 Patricia Q. Partch 7 Assistant Cashier 25 Simone Payne 7 Assistant Cashier 7 Steven Pomeroy 3 Assistant Cashier 27 Janet M. Preston 15 Assistant Cashier 25 Lenora Schoultheis 13 Assistant Cashier 40 Rhonda G. Wetzig 18 Assistant Cashier 18 A N N U A L R E P O R T 2 0 1 0 6 a g o o d s i g n Financial Highlights (Dollars in thousands, except per share data) For the Years Ended December 31, Income Statement Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income from continuing operations . . . . . . . . . . . . . . . . . . . . . Income from discontinued operations, net of tax . . . . . . . . . . . . . . Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income available to common shareholders. . . . . . . . . . . . . . . . Dividends declared per common share(1). . . . . . . . . . . . . . . . . . . . . Basic earnings per common share(1): Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discontinued operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted earnings per common share(1): Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discontinued operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance Sheet Loans – net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Earning assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Per common share: Book value at year end(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Performance Ratios Return on average assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Return on average shareholders’ equity. . . . . . . . . . . . . . . . . . . . . . 2010 $ 25,655 9,133 240 9,373 9,373 0.64 1.37 0.03 1.36 0.03 $ 452,350 706,226 760,134 638,539 21,691 23,120 70,707 2009 24,793 7,687 79 7,766 6,658 0.64 0.99 0.01 0.98 0.01 457,418 678,055 734,409 624,179 14,265 24,960 65,615 2008 20,928 6,427 176 6,603 6,603 0.64 0.96 0.03 0.96 0.03 451,343 599,825 649,731 577,622 2,206 5,000 58,116 2007 18,152 5,737 217 5,954 5,954 0.62 0.90 0.04 0.90 0.04 444,419 550,733 604,058 535,929 1,459 5,000 56,528 2006 18,315 6,182 332 6,514 6,514 0.60 0.95 0.05 0.95 0.05 388,320 505,485 548,215 478,615 15,370 – 50,999 10.57 9.81 8.69 8.45 7.99 1.22% 13.36% 1.07% 10.43% 1.03% 11.35% 1.08% 11.41% 1.19% 12.48% (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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 stock, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Federal Home Loan Bank stock, at cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Premises and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bank owned life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2010 $ 10,817 182 10,999 235,882 12,141 939 2,091 452,350 16,017 5,915 14,242 9,558 TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 760,134 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 12,000,000 shares, issued 7,445,514 at Dec. 31, 2010 and 2009 . . Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Treasury shares at cost, 755,771 shares and 758,282 shares at December 31, 2010 and 2009, respectively. . . Accumulated other comprehensive income, net of taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL SHAREHOLDERS’ EQUITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 98,994 539,545 638,539 21,691 23,120 6,077 689,427 – 11,068 15,447 54,045 (11,698) 1,845 70,707 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 760,134 2009 12,626 – 12,626 201,578 13,030 940 2,091 457,418 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 65,615 734,409 A N N U A L R E P O R T 2 0 1 0 7 a g o o d s i g n 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest on investment securities: Taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other 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 on deposit accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net gain on sales of securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bank owned life insurance income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gains from sales of mortgage loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL NON-INTEREST INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NON-INTEREST EXPENSE: Salaries and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equipment expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Occupancy expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State franchise tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intangible amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FDIC premiums. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ATM expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Computer maintenance and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Telephone expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Write-off of pension asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other non-interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL NON-INTEREST EXPENSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PROVISION FOR INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NET INCOME FROM CONTINUING OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX . . . . . . . . . . . . . . . . . . . . . . . . NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PREFERRED STOCK DIVIDENDS AND DISCOUNT ACCRETION . . . . . . . . . . . . . . . . . . . . . . NET INCOME AVAILABLE TO COMMON SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . Basic earnings per common share: Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discontinued operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted earnings per common share: Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discontinued operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Weighted average shares outstanding: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2010 $ 26,977 3,686 3,126 200 33,989 7,613 27 694 8,334 25,655 1,680 23,975 1,897 3,953 948 1,389 496 248 8,931 11,271 889 1,875 703 448 57 958 513 456 414 506 – 3,189 21,279 11,627 2,494 9,133 240 9,373 – $ 9,373 $ 1.37 0.03 1.36 0.03 2009 27,493 4,237 2,921 202 34,853 9,434 3 623 10,060 24,793 1,400 23,393 1,916 3,985 110 637 396 204 7,248 10,534 995 1,721 610 408 57 1,271 513 449 407 17 722 3,005 20,709 9,932 2,245 7,687 79 7,766 1,108 6,658 0.99 0.01 0.98 0.01 2008 29,024 2,641 1,995 689 34,349 13,145 13 263 13,421 20,928 620 20,308 1,861 4,211 – 534 11 184 6,801 10,183 973 1,652 614 433 257 75 456 454 439 9 – 3,003 18,548 8,561 2,134 6,427 176 6,603 – 6,603 0.96 0.03 0.96 0.03 6,687,500 6,736,622 6,687,232 6,701,309 6,687,232 6,687,232 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, 2010 and 2009, 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, 2010; and in our report dated March 1, 2011 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 March 1, 2011 A N N U A L R E P O R T 2 0 1 0 8 a g o o d s i g n 

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