EX-13 2 exhibit13.htm EXHIBIT 13






EXHIBIT 13



LCNB Corp. 2006 Annual Report



President's Letter to Shareholders (page 1 of Annual Report):


Dear Shareholders:


The theme of this year’s annual report is “Beyond The Obvious”. It is obvious that a community bank would offer traditional banking services, but as a financial holding company with trust, brokerage and insurance operations, we go “beyond the obvious”. Every business must respond to inquiries over the telephone. We go “beyond the obvious” by answering each individual call personally with a highly trained employee who gives you an answer, not an electronic menu. It is obvious that a bank must eventually give you credit for the checks you deposit in your account. We go “beyond the obvious” and give you 100% availability of all deposits no later than the next day. It is obvious that a bank must keep up with technology, but we go “beyond the obvious” with the most modern array of delivery channels and products available today. I could cite other examples, but suffice it to say that when you have a financial need, we will go “beyond the obvious” to treat you with the respect you deserve, the confidentiality you demand, the speed you desire and the accuracy necessary, all to exceed your expectations.


This approach to providing financial services paid off in 2006. It was another difficult year for most financial institutions. A flat to inverted yield curve led to declining interest rate margins. Incredible regulatory burden and increased competition, especially from government subsidized competitors, proved to be formidable challenges. The 259 people who make up LCNB Corp. worked hard to overcome the difficulties and challenges of 2006. We grew our loan portfolio by over 30 million dollars to minimize the pressure on the interest rate margin. We accomplished this 8.58% growth in net loans while maintaining our high standards of asset quality. We also set new records in non-interest income by working together to cross sell products. Through these efforts, we maintained the consistency of earnings that is our heritage and made possible an increase in the dividend paid to you, our shareholders, for the 21st consecutive year. Through all of these accomplishments, we remembered that taking care of our customers is top priority and, in the process, we grew our Assets Under Management, which includes LCNB corporate owned assets and assets serviced for others, by 3.05% to a record $870 million.


Net income for 2006 was $6.514 million representing a 1.19% return on average assets and a 12.48% return on average shareholders’ equity. Earnings per share was $2.01 in 2006 compared to $2.03 in 2005.  Total shareholders’ equity on December 31, 2006 was $51 million. Our capital position remains strong and it is our intention to maintain the FDIC “well capitalized” designation.


The total dividend paid in 2006 was $1.20 per share compared to $1.16 per share in 2005 for a 3.45% increase. Under current tax laws, we feel that maintaining a strong dividend payout is in the best interest of our shareholders.








Besides our loan growth and growth in Assets Under Management, another key factor in our success was the growth we experienced in non-interest income. Our relationship strategy paid off again in 2006 as we grew non-interest income by 4.89%. With continued pressure on interest income, this area was important in 2006 and will be essential to our future. Along with our commercial bank, the trust department, brokerage unit and insurance subsidiary all made positive contributions to our non-interest income.


Additional statistical data and information on our financial performance for 2006 are 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 of our website, www.LCNB.com.


We enter 2007 with a great deal of excitement as we build a new office, renovate existing branches, bring on new customer service software, expand our trust and brokerage operations and continue to grow our insurance subsidiary. We do all of these things with a commitment to the communities we serve and a focus on the changing needs of our customers.


The Annual Meeting for LCNB Corp. will be Tuesday, April 10, 2007 at 10:00 a.m. at our Main Office located at 2 N. 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

President & CEO














FINANCIAL HIGHLIGHTS

(Dollars in thousands, except per share data)



  

For the Years Ended December 31,

  

2006

 

2005

 

2004

 

2003

 

2002

   

Income Statement

          

Net Interest Income

$

18,315

 

18,570

 

18,280

 

18,757

 

19,493

Net Income

 

6,514

 

6,705

 

6,596

 

6,737

 

6,540

Per common share:  

          

  Net income, basic and

    diluted (1)



2.01

 


2.03

 


1.97

 


1.97 

 


1.90     

   Dividends declared (1)

 

1.20

 

1.16

 

1.115

 

1.0625

 

1.0125

           

Balance Sheet

          

Loans – net

$

388,320

 

357,651

 

334,440

 

315,683

 

322,832

Earning assets

 

505,485

 

498,396

 

485,485

 

494,359

 

475,806

Total assets

 

548,215

 

539,501

 

522,251

 

523,608

 

506,751

Total deposits

 

478,615

 

481,475

 

463,900

 

463,033

 

442,220

Short-term borrowings

 

15,370

 

1,031

 

1,269

 

633

 

3,022

Long-term debt

 

-

 

2,073

 

2,137

 

4,197

 

 6,253

Total shareholders' equity

 

50,999

 

52,022

 

52,296

 

52,448

 

51,930

Per common share:

  Book value at year end (1)

 


15.99

 


15.87

 


15.71

 


15.54

 


15.09

           

Performance Ratios

          

Return on average assets

 

1.19%

 

1.25%

 

1.29%

 

1.31%

 

1.32%

Return on average

  shareholders’ equity

 


12.48%

 


12.80%

 


12.56%

 


12.64%

 


13.00%


(1)  All per share data have been adjusted to reflect a 100% stock dividend accounted for   

 as a stock  split in 2004.










LCNB CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

At December 31,

(Dollars in thousands)

 
 
   

2006

   

2005

 

ASSETS:

        

   Cash and due from banks

 

$

14,864 

   

13,415 

 

   Federal funds sold and interest-bearing demand deposits

  

641 

   

1,909 

 

        Total cash and cash equivalents

  

15,505 

   

15,324 

 
         

   Securities available for sale, at market value

  

111,142 

   

133,505 

 

   Federal Reserve Bank and Federal Home Loan

     Bank stock, at cost

  


3,332 

   


3,181 

 

   Loans, net

  

388,320 

   

357,651 

 

   Premises and equipment, net

  

12,090 

   

12,571 

 

   Intangibles, net

  

1,426 

   

1,575 

 

   Bank owned life insurance

  

10,979 

   

10,515 

 

   Other assets

  

5,421 

   

5,179 

 

            TOTAL ASSETS

 

$

548,215 

   

539,501 

 
         

LIABILITIES:

        

   Deposits -

        

    Noninterest-bearing

 

$

82,360 

   

82,030 

 

    Interest-bearing

  

396,255 

   

399,445 

 

        Total deposits

  

478,615 

   

481,475 

 

   Short-term borrowings

  

15,370 

   

1,031 

 

   Long-term debt

  

- 

   

2,073 

 

   Accrued interest and other liabilities

  

3,231 

   

2,900 

 

            TOTAL LIABILITIES

  

497,216 

   

487,479 

 
         

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 3,551,884 shares

  


10,560 

   


10,560 

 

   Surplus

  

10,577 

   

10,562 

 

   Retained earnings

  

42,245 

   

39,612 

 

   Treasury shares at cost, 362,066 and 274,676 shares

     at December 31, 2006 and 2005, respectively

  


(11,242)

   


(8,011)

 

   Accumulated other comprehensive income (loss),

     net of taxes

  


(1,141)

   


(701)

 

            TOTAL SHAREHOLDERS' EQUITY

  

50,999 

   

52,022 

 
         

            TOTAL LIABILITES AND

               SHAREHOLDERS' EQUITY

 


$


548,215 

   


539,501 

 
         
 







LCNB CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

For the years ended December 31,

(Dollars in thousands, except per share data)

 
 
  

2006

 

2005

 

2004

INTEREST INCOME:

      

   Interest and fees on loans

$

25,284

 

22,278

 

20,517

   Dividends on Federal Reserve Bank

     and Federal Home Loan Bank stock

 


189

 


162

 


136

   Interest on investment securities-

      

       Taxable

 

2,650

 

2,685

 

2,792

       Non-taxable

 

1,967

 

2,102

 

1,954

   Other short-term investments

 

458

 

375

 

249

        TOTAL INTEREST INCOME

 

30,548

 

27,602

 

25,648

       

INTEREST EXPENSE:

      

   Interest on deposits

 

12,113

 

8,865

 

 7,157

   Interest on short-term borrowings

 

90

 

49

 

 6

   Interest on long-term debt

 

30

 

118

 

205

        TOTAL INTEREST EXPENSE

 

12,233

 

9,032

 

 7,368

        NET INTEREST INCOME

 

18,315

 

18,570

 

18,280

PROVISION FOR LOAN LOSSES

 

143

 

338

 

489

       

        NET INTEREST INCOME AFTER

          PROVISION FOR LOAN LOSSES

 


18,172

 


18,232

 


17,791

       

NON-INTEREST INCOME:

      

   Trust income

 

1,932

 

1,670

 

1,544

   Service charges and fees

 

4,103

 

4,018

 

3,836

   Net gain (loss) on sales of securities

 

(12)

 

(8)

 

  306

   Insurance agency income

 

1,682

 

1,451

 

1,359

   Bank owned life insurance income

 

464

 

487

 

29

   Gains from sales of mortgage loans

 

47

 

98

 

 52

   Gain from sale of credit card portfolio

 

-

 

-

 

403

   Other operating income

 

129

 

240

 

130

        TOTAL NON-INTEREST INCOME

 

8,345

 

7,956

 

7,659

       

NON-INTEREST EXPENSE:

      

   Salaries and wages

 

7,860

 

7,495

 

6,955

   Pension and other employee benefits

 

2,003

 

1,843

 

1,875

   Equipment expenses

 

1,049

 

1,064

 

1,030

   Occupancy expense, net

 

1,370

 

1,279

 

1,178

   State franchise tax

 

622

 

613

 

581

   Marketing

 

374

 

417

 

436

   Intangible amortization

 

621

 

591

 

598

   ATM expense

 

456

 

371

 

310

   Computer maintenance and supplies

 

378

 

384

 

402

   Other non-interest expense

 

3,105

 

3,186

 

3,039

        TOTAL NON-INTEREST EXPENSE

 

17,838

 

17,243

 

16,404

       

        INCOME BEFORE INCOME TAXES

 

8,679

 

8,945

 

9,046

PROVISION FOR INCOME TAXES

 

2,165

 

2,240

 

2,450

        NET INCOME

$

6,514

 

6,705

 

6,596

       

Earnings per common share:

      

   Basic

$

2.01

 

2.03

 

1.97

   Diluted

 

2.01

 

2.03

 

1.97

       

Weighted average shares outstanding:

      

   Basic

 

3,242,419

 

3,304,157

 

3,351,146

   Diluted

 

3,243,627

 

3,305,462

 

3,352,297

       
 








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 sheet of LCNB Corp. and subsidiaries as of December 31, 2006 and 2005, and the related consolidated statements of income, and shareholder’ equity and cash flows (not included herein), for each of the three years in the period ended December 31, 2006; and in our report dated February 21, 2007 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.



/s/ J.D. Cloud & Co. L.L.P.


Cincinnati, Ohio

February 21, 2007