LCNB Corp
Annual Report 2011

Plain-text annual report

Building for the Future with Personal Service, Convenience and Performance This bench was erected in honor of our friend and colleague, Ben Jackson. Letter To Our Shareholders Dear Shareholders: Steve Wilson We are pleased to report to our sharehold- ers the completion of another successful year in 2011 despite economic and regulatory challenges. At the end of 2010 we pre- dicted and hoped for an improving U.S. economy in 2011. By most measure- ments the economy gained some strength in 2011 although unemployment still remained too high. Interest rates remained low throughout 2011 and con- tinue to remain low as we enter 2012. Consistent with general industry trends, historic sustained low interest rates put pressure on the Bank’s interest margin in 2011. Additionally, the passage of the Dodd-Frank Bill in 2010 has added and will add additional regulations that create a com- pliance burden for financial institutions. That compliance burden is predicted to be a contribut- ing factor in the closing, selling, or merging of at least 25% of financial institutions in the next 3 to 5 years. Compliance is an expensive task and a larger burden for financial institutions smaller than LCNB that do not have the staff to dedicate to compliance. Many small communities have only one bank and the loss of those banks will have a negative effect on the success and quality of life for many citizens. Nevertheless, the drivers of our success are our strong corporate values which continue to lead us in this environment. This Annual Report highlights “Building for the Future with Personal Service, Conve- Steve Foster nience, and Performance”. As you will read within this report, LCNB realizes the importance of excellent customer service and the many ways that customer service is presented. The Board of Directors, management, and Directors, management, and employees strive to provide employees strive to provide the best service using the the best service using the latest technology available latest technology available in the markets we serve. in the markets we serve. Although the low interest rates and resulting interest rates and resulting lower lower interest margin were a challenge to earnings, a challenge to earnings, LCNB successfully earned LCNB successfully earned a 1.02% return on average a 1.02% return on average assets and a 10.89% return assets and a 10.89% return on average equity. As stated on average equity. As stated in our end of the year earn- in our end of the year earn ings release, we believe that consistency in per- formance is important. We always strive to take a long-term versus a short-term view. To that end, we are pleased that for over 35 years your Bank has achieved at least a 1% return on average assets and double digit return on average equity. Of greatest importance to you, our shareholder, is the consistent dividend payment that has been the result of that performance. Net income was $8.1 million, resulting in total basic earnings per share of $1.21. LCNB’s total assets grew by 4.1% or $31.4 million to $791.6 million from Decem- ber 31, 2010 to December 31, 2011. Total net loans grew by $6.0 million or 1.3% in 2011 with commercial loans growing 7.7%. The continued low interest rate environment allowed consumers to finance or refinance their mortgages. LCNB originated or refinanced $26 million in 1-4 family mortgages for consumers in 2011. Another $9.4 A N N U A L R E P O R T 2 0 1 1 1 B U I L D I N G F O R T H E F U T U R E Letter To Our Shareholders million of 1-4 family mortgages were originated and sold in the secondary market during 2011. Total shareholders’ equity on December 31, 2011 was $78.0 million which was an increase of 10.3% from December 31, 2010. Our capital remains in the “well capitalized” designation. In the first quarter for 2011 LCNB Corp. sold the insurance subsidiary Dakin Insurance Agency. David Beckett, the President of Dakin Insurance, made the decision to move out of state and LCNB’s Board of Directors and management decided to take that opportunity to sell the insur- ance agency to the Rixey-Berry Insurance Group. That sale was completed in late March 2011 and was recognized as a gain on LCNB Corp.’s finan- cial statements. Unfortunately, in 2011 the LCNB family was saddened by the sudden deaths of three LCNB employees. In early March, Ed Hale, Vice President of Mortgage Loans, was stricken by a heart attack and died suddenly. Although Ed had only been with LCNB for two years, many of us had known Ed as a local banker for over thirty-six years. In late July, Ben Jackson lost his battle with cancer. Ben had worked at LCNB for over thirty- seven years helping LCNB grow from a $30 mil- lion asset bank to an almost $800 million asset bank at his death. Ben’s dedication and hard work was instrumental in LCNB’s growth and success. In late December, Linda Palmer also died suddenly. Linda had worked in our Mason office as a teller for over ten years. Linda was well-liked by her fellow employees and her customers. All three were an important part of the LCNB family and will be missed. Several projects that were started in 2010 were completed in 2011. The replacement of Continued older ATMs with new touch screen models was completed in 2011. The construction of a new full service branch in Monroe, Ohio was started in November, 2010 and it opened in June, 2011. The construction of a new Auto Bank at the Main Office was also completed in 2011. The new Auto Bank includes a drive-up ATM and a drive-up night depository. We also closed our Bridgetown Office during 2011. While that may sound like a negative, it does demonstrate that your Board and Management consistently strive to insure that all our operations are either cur- rently profitable or have strong potential to enhance our bottom line. Work on providing mobile banking using smart phones was also started in late 2011 to roll out in early 2012. Additional statistical data and informa- tion on our financial performance for 2011 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 shareholder informa- tion section on our website, www.LCNB.com or www.lcnbcorp.com. The Annual Meeting for LCNB Corp. will be Tuesday, April 24th, 2012 at 10:00 a.m. at our Main Office located at 2 North Broadway in Leb- anon, 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 1 1 2 B U I L D I N G F O R T H E F U T U R E 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. 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. Anne E. Krehbiel Attorney Rick L. Blossom Managing Partner, Reality Check, LLC Steve P. Foster President A N N U A L R E P O R T 2 0 1 1 3 B U I L D I N G F O R T H E F U T U R E Building for the Future with Personal Service, Convenience and Performance Every era in banking presents new challenges and opportunities to assure our LCNB National Bank customers that their Bank is a safe and secure place to invest, borrow and grow their money. And, as a community bank, we must also assure our custom- ers that our financial products, technology and delivery channels are the best and most secure available without sacrificing the personal service and convenience upon which they depend. Our final challenge is that the Bank must blend these assurances together to serve our customers and provide the expected results of our shareholders. To some this sounds daunting, but we have a long history of meeting these challenges and turning them into opportunities. For example, in 1877 our Founders opened the Bank in very trying times with the promise to their customers that they would provide the best in security and safety with easy access to their money. They accomplished this by being open convenient hours, staffing with knowledgeable people and installing a 6,000 lb. safe. Everyone in the Bank was involved. We like to think of this as state-of-the-art technology in community banking 135 years ago. Today, our challenge to meet those same assurances has not changed in scope. Our people are knowledgeable and dedicated. We concentrate our efforts on personal service and offering the best in financial products and services. And although we have a much larger vault today, we also have more secure delivery channels that serve the same purpose. Some things never change. We continue to turn challenges into opportunities. Dedication and Education The majority of our officers and staff have long careers with the Bank. They all agree that constant internal and external educa- tion about products, services and security are a key to their suc- cess. Their education and knowledge are challenged everyday with questions from our customers. These questions range from how a product can help them manage their finances more easily to just solving a problem. What- ever the situation, when we help them find the answers they are looking for we all feel a sense of satisfaction in a job well done. That is the essence of com- munity banking. Bricks and Mortar – 25 Offices LCNB is a community bank. We still hold true to the traditions of local service and personal banking. Despite the explosion of high- tech offerings, our customers still want the ability to walk into their LCNB office and visit with our personnel. It gives them a comfort level of knowing with whom they are investing their money or have their loan. Our 25 offices continue to be one of our most important delivery channels. During this past year, we opened a new office in Mon- roe and built a new Auto Bank to replace our 35-year old structure. Both of these offices provide a greater presence for the Bank in important markets we serve. Our ATM Network, BankLine, Imaging, and IT Department When we first installed our ATMs, it became obvious that additional delivery channels would be carried through phone lines. From that moment, we began to build for the future. Our Information Technol- ogy (IT) Department was created and they were given the ongoing task to find safe and secure solutions to the many new technologies being of- fered. Around this same time, the Bank introduced BankLine, our automated telephone banking service. This allowed our customers to perform some of their banking functions with a touchtone phone. We also invested in imaging scan- ners for our checking and busi- ness customers. This provided a quick search and secure mechanism for someone seeking records. Today, these services are nothing like their predecessors. The evolution of each through software upgrades, satellites and the Internet has made them extremely vital to our customers in managing their finances. Our IT Department grew in its acquired knowledge and personnel so that we can keep these delivery chan- nels running securely to serve our customers anywhere in the world. Online Banking, Online Loan Applications and Call Center Providing Internet access for all of our products and services in a safe, secure and dependable manner has always been a high priority and a challenge. At the same time, new services were being offered and developed. We knew our customers wanted the option to use the new available technology like Online Banking and Online Loan Applica- tions. However, customers did not want to sacrifice their personal interac- tion with their Bank. Leading the effort to promote the benefits of both was the management team, but the day-to-day solution-providers were our Infor- mation Technology Department and the Call Center. Our Call Center staff personally answers every phone call, answers questions, solves problems, transfers customers to correct departments, and pro- vides the personal touch that helps define our personal banking style. Mobile Banking Mobile Banking, our newest delivery channel, allows our custom- ers to access their accounts on their smart phone and perform many of the same transactions currently performed on their com- puters or in-person at one of our offices. This service has grown in popularity because of the change in our customers’ lifestyles and work sched- ules. When we combine our mobile banking with personal service – this gives us an edge in the competitive banking world and one in which we are most proud. 4 5 LCNB Officers Name Years with LCNB Title Years of Related Experience Name Years with LCNB Title Years of Related Experience Chairman & CEO 40 William E. Childers 13 Assistant VP Stephen P. Wilson Steve P. Foster 37 35 President Bernard H. Wright, Jr. 34 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 Peter G. Berninger 20 29 16 24 29 22 25 11 25 7 Executive VP Executive VP Executive VP Executive VP Senior VP Senior VP Senior VP Vice President Vice President Vice President Gene G. Bonny 1 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 A. Stitsinger David R. Theiss Melanie K. Crane S. Diane Ingram 6 3 22 33 4 3 5 4 3 14 9 22 10 5 13 26 20 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 Vice President Trust Officer Trust Officer Randy Bernhardt 5 Assistant VP Amy L. Butler 20 Assistant VP 38 37 20 29 26 24 29 35 25 33 25 29 6 23 31 22 40 35 13 29 13 32 38 24 40 35 33 33 26 20 27 20 Karen M. Cramer 24 Assistant VP Lisa E. Emmel 6 Assistant VP Patricia S. Hogan 21 Assistant VP Sherry L. Jackson 17 Assistant VP Kimberly J. Johnson 31 Assistant VP Annie S. Joseph 6 Assistant VP Steven C. Lautenslager 22 Assistant VP Michael Lavatori 9 Assistant VP Teresa A. McCurley 23 Assistant VP Roger P. Mersch 6 Assistant VP Patricia D. Mitchell 33 Assistant VP Judith Neiheisel 5 Assistant VP Beverly K. Taylor 35 Assistant VP John L. Torbeck 2 Assistant VP Elizabeth G. Vogele 1 Assistant VP John E. Wetzig, III 23 Assistant VP Melissa M. Cordes 11 Branch Officer 16 24 22 21 17 33 14 22 23 23 28 33 29 35 26 30 23 17 Karen A. Day 17 Assistant Cashier 17 Lisa A. Gibson 9 Assistant Cashier 21 Christina L. Harris Terry J. Howard 16 22 Branch Officer Branch Officer 16 22 Kimberly B. Isaacs 16 Assistant Cashier 16 Mary Lynn Johnson 25 Assistant Cashier 25 M. Teresa Jenkins Paula L. Lee Tammy S. Murray Patricia Q. Partch 8 8 12 8 Branch Officer Branch Officer Branch Officer Branch Officer 38 10 13 26 Janet M. Preston 16 Assistant Cashier 26 Lenora Schoultheis 14 Branch Officer Simone Walter 8 Assistant Cashier Rhonda G. Wetzig 19 Branch Officer 41 8 19 A N N U A L R E P O R T 2 0 1 1 6 B U I L D I N G F O R T H E F U T U R E 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. . . . . . . . . . . . . . . . . . . . . . 2011 $ 25,706 7,322 793 8,115 8,115 0.64 1.09 0.12 1.08 0.12 $458,331 736,119 791,570 663,562 21,596 21,373 77,960 2010 25,697 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 24,838 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 20,977 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 18,203 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 11.63 10.57 9.81 8.69 8.45 1.02% 10.89% 1.22% 13.36% 1.07% 10.43% 1.03% 11.35% 1.08% 11.41% (1)All per share data for 2007 has been adjusted to reflect a 100% stock dividend accounted for as a stock split. 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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 12,000,000 shares, issued 7,460,494 and 7,445,514 shares at December 31, 2011 and 2010, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Treasury shares at cost, 755,771 shares at December 31, 2011 and 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated other comprehensive income, net of taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL SHAREHOLDERS’ EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2011 $ 12,449 7,086 19,535 254,006 10,734 940 2,091 458,331 17,346 5,915 14,837 7,835 $791,570 $106,793 556,769 663,562 21,596 21,373 7,079 713,610 2010 10,817 182 10,999 235,882 12,141 939 2,091 452,350 16,017 5,915 14,242 9,558 760,134 98,994 539,545 638,539 21,691 23,120 6,077 689,427 – – 26,753 57,877 (11,698) 5,028 77,960 $791,570 26,515 54,045 (11,698) 1,845 70,707 760,134 A N N U A L R E P O R T 2 0 1 1 7 B U I L D I N G F O R T H E F U T 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2011 $ 25,502 3,843 2,571 177 32,093 5,702 28 657 6,387 25,706 2,089 23,617 2,099 3,739 948 596 177 205 7,764 11,743 1,038 1,761 764 480 545 553 565 407 350 – 3,643 21,849 9,532 2,210 7,322 793 8,115 – $ 8,115 $ 1.09 0.12 1.08 0.12 2010 27,020 3,686 3,126 199 34,031 7,613 27 694 8,334 25,697 1,680 24,017 1,897 3,904 948 1,389 496 253 8,887 11,271 889 1,875 703 448 958 513 456 414 506 – 3,244 21,277 11,627 2,494 9,133 240 9,373 – 9,373 1.37 0.03 1.36 0.03 2009 27,538 4,237 2,921 202 34,898 9,434 3 623 10,060 24,838 1,400 23,438 1,916 3,931 110 637 396 190 7,180 10,534 995 1,721 610 408 1,271 513 449 407 17 722 3,039 20,686 9,932 2,245 7,687 79 7,766 1,108 6,658 0.99 0.01 0.98 0.01 6,692,385 6,751,599 6,687,500 6,736,622 6,687,232 6,701,309 Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders LCNB Corp. We have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consoli- dated balance sheets of LCNB Corp. and subsidiaries as of December 31, 2011 and 2010, 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, 2011; and in our report dated February 27, 2012, 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, 2012 A N N U A L R E P O R T 2 0 1 1 8 B U I L D I N G F O R T H E F U T U R E Building for the Future with Personal Service, Convenience and Performance This bench was erected in honor of our friend and colleague, Ben Jackson. 

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