EX-13 2 exhibit1312312014.htm EXHIBIT 13
EXHIBIT 13
LCNB Corp. 2014 Annual Report
CEO’s and President's Letter to Shareholders (page 1 and 2 of Annual Report):
Dear Shareholder,
The 2014 Annual Report showcases just a few of those men and women who served in the Armed Forces since the Bank’s founding. Most of the individuals featured in our Annual Report are relatives of our LCNB employees, and several, in fact, are employees who served. LCNB employees understand the importance of serving the communities in which they live and work. It is a very important part of being a community bank. They embrace this responsibility by volunteering with United Way, Relay for Life, the Chamber of Commerce, scouting, food pantries, and many more charitable and civic organizations such as Rotary, Optimists, Kiwanis, and Jaycees. It is this dedication to the communities that we serve that makes LCNB a community bank. That has been our philosophy since 1877.
As Yogi Berra said, “It’s déjà vu all over again”. The year 2014 started much like the previous year began. LCNB negotiated the purchase of Eaton National Bank in the fourth quarter of 2013 and closed the transaction in the first quarter of 2014. Likewise, LCNB negotiated the purchase of Brookville National Bank during the fourth quarter of 2014 and we expect to close the transaction in the first half of 2015. Brookville National Bank (BNB) will add two offices to our organization, increasing our office total to 37 across nine counties. Both BNB offices are located in the city of Brookville which is west of Dayton, Ohio in Montgomery County. This purchase will complement last year’s addition of the five Eaton National Bank offices located west of Brookville in Preble County. BNB will add approximately $110 million in assets to LCNB’s balance sheet making LCNB a $1.2 billion financial institution.
Last year was another successful year for LCNB. Strong earnings in 2014 allowed LCNB to provide shareholders a dividend payout ratio of just over 60%. The return on average assets (ROAA) was 0.88% and the return on average equity (ROAE) was 8.04% for 2014. LCNB’s earnings were affected by one-time merger expenses of approximately $1.4 million on a pre-tax basis. If these tax effected merger expenses were not included, LCNB’s ROAA would have been 0.95% and the ROAE would have been 8.67%. Net income was $9.9 million, resulting in total basic earnings per share of $1.06. Total shareholder’s equity increased $6.8 million from December 31, 2013 to December 31, 2014, an increase of 5.74%. LCNB’s net interest margin improved from 3.57% on December 31, 2013 to 3.66% on December 31, 2014.
It is with great sadness that we report that Howard Wilson, former Chairman and CEO of LCNB, passed away on January 4, 2015 and Dave Witham, Vice President, passed away on February 21, 2015. Mr. Wilson was named President of Lebanon Citizens National Bank in 1969 after joining the bank as Executive Vice President in 1968. Mr. Wilson retired in 1992. During Mr. Wilson’s tenure the bank increased in total assets by approximately $260 million and the bank started its branch expansion under Mr. Wilson’s leadership. Howard Wilson, like so many represented in this Annual Report, was a Navy veteran of WWII and a great community banker. Mr. Witham worked for LCNB for 45 years and retired from the bank in 2010. Dave, a native of Lebanon and a U.S. Air Force veteran who served in Vietnam, was well known in the community. Mr. Witham managed the Columbus Avenue and Middletown

branches during his tenure at LCNB. He is best remembered as a loan officer that had a very large and loyal customer base. Like Mr. Wilson, Dave helped LCNB successfully grow during his 45 years with the bank. Both gentlemen will be missed as bankers and as strong citizens of our community.
Additional statistical data and information on our financial performance for 2014 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 information section on our website, www.LCNB.com or www.lcnbcorp.com.
The Annual Meeting for LCNB Corp. will be Tuesday, April 28, 2015 at 10:00 a.m. at our Main Office located at 2 North Broadway in Lebanon, Ohio. Proxy material is included with this 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.

/s/ Stephen P. Wilson |  | /s/ Steve P. Foster
Stephen P. Wilson Chairman and CEO |  | Steve P. Foster President

FINANCIAL HIGHLIGHTS
(Dollars in thousands, except per share data)

| For the Years Ended December 31,
| 2014 |  | 2013 |  | 2012 |  | 2011 |  | 2010
Income Statement |  |  |  |  |  |  |  |  |
Net interest income | $ | 35,887 |  |  | 29,432 |  |  | 25,049 |  |  | 25,706 |  |  | 25,697 |
Net income from continuing operations | 9,869 |  |  | 8,780 |  |  | 8,270 |  |  | 7,322 |  |  | 9,133 |
Income from discontinued operations, net of tax | — |  |  | — |  |  | — |  |  | 793 |  |  | 240 |
Net income | 9,869 |  |  | 8,780 |  |  | 8,270 |  |  | 8,115 |  |  | 9,373 |
Dividends declared per common share | 0.64 |  |  | 0.64 |  |  | 0.64 |  |  | 0.64 |  |  | 0.64 |
Basic earnings per common share: |  |  |  |  |  |  |  |  |
Continuing operations | 1.06 |  |  | 1.12 |  |  | 1.23 |  |  | 1.09 |  |  | 1.37 |
Discontinued operations | — |  |  | — |  |  | — |  |  | 0.12 |  |  | 0.03 |
Diluted earnings per common share: |  |  |  |  |  |  |  |  |
Continuing operations | 1.05 |  |  | 1.10 |  |  | 1.22 |  |  | 1.08 |  |  | 1.36 |
Discontinued operations | — |  |  | — |  |  | — |  |  | 0.12 |  |  | 0.03 |
Balance Sheet |  |  |  |  |  |  |  |  |
Loans, net | $ | 695,835 |  |  | 570,766 |  |  | 450,346 |  |  | 458,331 |  |  | 452,350 |
Earning assets | 1,014,640 |  |  | 857,653 |  |  | 732,968 |  |  | 736,119 |  |  | 706,226 |
Total assets | 1,108,066 |  |  | 932,338 |  |  | 788,637 |  |  | 791,570 |  |  | 760,134 |
Total deposits | 946,205 |  |  | 785,761 |  |  | 671,471 |  |  | 663,562 |  |  | 638,539 |
Short-term borrowings | 16,645 |  |  | 8,655 |  |  | 13,756 |  |  | 21,596 |  |  | 21,691 |
Long-term debt | 11,357 |  |  | 12,102 |  |  | 13,705 |  |  | 21,373 |  |  | 23,120 |
Total shareholders' equity | 125,695 |  |  | 118,873 |  |  | 82,006 |  |  | 77,960 |  |  | 70,707 |
Per common share: Book value at year end | 13.50 |  |  | 12.80 |  |  | 12.18 |  |  | 11.63 |  |  | 10.57 |
Performance Ratios |  |  |  |  |  |  |  |  |
Return on average assets | 0.88 | % |  | 0.93 | % |  | 1.02 | % |  | 1.02 | % |  | 1.22 | %
Return on average shareholders’ equity | 8.04 | % |  | 9.02 | % |  | 10.22 | % |  | 10.89 | % |  | 13.36 | %

LCNB CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
At December 31,
(Dollars in thousands)
|  | 2014 |  | 2013 |
ASSETS: |  |  |  |  |
Cash and due from banks |  | $ | 14,235 |  |  | 10,410 |  |
Interest-bearing demand deposits |  | 1,610 |  |  | 4,278 |  |
Total cash and cash equivalents |  | 15,845 |  |  | 14,688 |  |
Investment securities: |  |  |  |  |
Available-for-sale, at fair value |  | 285,365 |  |  | 258,241 |  |
Held-to-maturity, at cost |  | 22,725 |  |  | 16,323 |  |
Federal Reserve Bank stock, at cost |  | 2,346 |  |  | 1,603 |  |
Federal Home Loan Bank stock, at cost |  | 3,638 |  |  | 2,854 |  |
Loans, net |  | 695,835 |  |  | 570,766 |  |
Premises and equipment, net |  | 20,733 |  |  | 19,897 |  |
Goodwill |  | 27,638 |  |  | 14,186 |  |
Core deposit and other intangibles |  | 4,780 |  |  | 2,795 |  |
Bank owned life insurance |  | 21,936 |  |  | 21,280 |  |
Other assets |  | 7,225 |  |  | 9,705 |  |
TOTAL ASSETS |  | $ | 1,108,066 |  |  | 932,338 |  |
LIABILITIES: |  |  |  |  |
Deposits: |  |  |  |  |
Noninterest-bearing |  | $ | 213,303 |  |  | 164,912 |  |
Interest-bearing |  | 732,902 |  |  | 620,849 |  |
Total deposits |  | 946,205 |  |  | 785,761 |  |
Short-term borrowings |  | 16,645 |  |  | 8,655 |  |
Long-term debt |  | 11,357 |  |  | 12,102 |  |
Accrued interest and other liabilities |  | 8,164 |  |  | 6,947 |  |
TOTAL LIABILITIES |  | 982,371 |  |  | 813,465 |  |
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 10,064,945 and 10,041,163 shares at December 31, 2014 and 2013, respectively |  | 67,181 |  |  | 66,785 |  |
Retained earnings |  | 69,394 |  |  | 65,475 |  |
Treasury shares at cost, 753,627 shares at December 31, 2014 and 2013 |  | (11,665 | ) |  | (11,665 | ) |
Accumulated other comprehensive income (loss), net of taxes |  | 785 |  |  | (1,722 | ) |
TOTAL SHAREHOLDERS' EQUITY |  | 125,695 |  |  | 118,873 |  |
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY |  | $ | 1,108,066 |  |  | 932,338 |  |

LCNB CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31,
(Dollars in thousands, except per share data)
|  | 2014 |  | 2013 |  | 2012
INTEREST INCOME: |  |  |  |  |  |
Interest and fees on loans | $ | 32,706 |  |  | 27,325 |  |  | 23,585 |
Interest on investment securities: |  |  |  |  |  |
Taxable |  | 3,757 |  |  | 3,369 |  |  | 3,737 |
Non-taxable |  | 2,713 |  |  | 2,573 |  |  | 2,441 |
Other investments |  | 301 |  |  | 230 |  |  | 175 |
TOTAL INTEREST INCOME |  | 39,477 |  |  | 33,497 |  |  | 29,938 |
INTEREST EXPENSE: |  |  |  |  |  |
Interest on deposits |  | 3,161 |  |  | 3,602 |  |  | 4,317 |
Interest on short-term borrowings |  | 22 |  |  | 25 |  |  | 16 |
Interest on long-term debt |  | 407 |  |  | 438 |  |  | 556 |
TOTAL INTEREST EXPENSE |  | 3,590 |  |  | 4,065 |  |  | 4,889 |
NET INTEREST INCOME |  | 35,887 |  |  | 29,432 |  |  | 25,049 |
PROVISION FOR LOAN LOSSES |  | 930 |  |  | 588 |  |  | 1,351 |
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES |  | 34,957 |  |  | 28,844 |  |  | 23,698 |
NON-INTEREST INCOME: |  |  |  |  |  |
Trust income |  | 2,903 |  |  | 2,518 |  |  | 2,317 |
Service charges and fees on deposit accounts |  | 4,838 |  |  | 4,155 |  |  | 3,605 |
Net gain on sales of securities |  | 149 |  |  | 1,060 |  |  | 1,853 |
Bank owned life insurance income |  | 671 |  |  | 678 |  |  | 578 |
Gains from sales of mortgage loans |  | 147 |  |  | 339 |  |  | 506 |
Other operating income |  | 434 |  |  | 340 |  |  | 190 |
TOTAL NON-INTEREST INCOME |  | 9,142 |  |  | 9,090 |  |  | 9,049 |
NON-INTEREST EXPENSE: |  |  |  |  |  |
Salaries and employee benefits |  | 15,762 |  |  | 13,487 |  |  | 11,614 |
Equipment expenses |  | 1,316 |  |  | 1,232 |  |  | 1,100 |
Occupancy expense, net |  | 2,232 |  |  | 2,042 |  |  | 1,671 |
State franchise tax |  | 955 |  |  | 846 |  |  | 790 |
Marketing |  | 703 |  |  | 561 |  |  | 526 |
Amortization of intangibles |  | 574 |  |  | 334 |  |  | 57 |
FDIC premiums |  | 660 |  |  | 499 |  |  | 405 |
ATM expense |  | 624 |  |  | 534 |  |  | 620 |
Computer maintenance and supplies |  | 794 |  |  | 616 |  |  | 524 |
Telephone expense |  | 690 |  |  | 566 |  |  | 465 |
Contracted services |  | 880 |  |  | 568 |  |  | 441 |
Other real estate owned |  | 285 |  |  | (30 | ) |  | 490 |
Merger-related expenses |  | 1,400 |  |  | 1,433 |  |  | 79 |
Other non-interest expense |  | 3,969 |  |  | 3,524 |  |  | 2,900 |
TOTAL NON-INTEREST EXPENSE |  | 30,844 |  |  | 26,212 |  |  | 21,682 |
INCOME BEFORE INCOME TAXES |  | 13,255 |  |  | 11,722 |  |  | 11,065 |
PROVISION FOR INCOME TAXES |  | 3,386 |  |  | 2,942 |  |  | 2,795 |
NET INCOME | $ | 9,869 |  |  | 8,780 |  |  | 8,270 |
Earnings per common share: |  |  |  |  |  |
Basic | $ | 1.06 |  |  | 1.12 |  |  | 1.23 |
Diluted |  | 1.05 |  |  | 1.10 |  |  | 1.22 |
Weighted average shares outstanding: |  |  |  |  |  |
Basic |  | 9,297,019 |  |  | 7,852,514 |  |  | 6,717,357 |
Diluted |  | 9,406,346 |  |  | 7,982,997 |  |  | 6,802,475 |