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Report Annual ANNUAL 2 0 1 4 REPORT Lone Star National Bancshares-Texas, Inc. Our Mission Statement Lone Star National Bank will be the respected leader in financial services committed to building customer relationships and helping them succeed financially. With our Customers, Employees, Community and Shareholders, Lone Star National Bank stands by the following Pillars: Customers: Being a trusted financial advisor by providing superior customer service through an array of financial products. Employees: Providing a rewarding work environment with opportunities for career advancement and professional development. Community: Championing our communities with pride and integrity to promote growth. Shareholders: Creating a culture to operate efficiently and effectively to maximize shareholder value. Our Values which support our Pillars: ITY EGR INT H O N E S T N Y O I T A C I N U M RESPECT M O C T N E M IT A M C M O C C OU NT ABILITY We will continue to move forward in our commitment to impact those in the communities we serve. - S. David Deanda, Jr. President 4 Letter to Shareholders, Customers & Friends 8 Financial Highlights 9 Management’s Discussion and Analysis of Financial Conditions and Results of Operations 14 Management’s Report on Responsibility for Financial Reporting 15 Independent Auditor’s Report 56 Board of Directors 58 Advisory Directors 60 Bank Officers 62 Banking Centers, Mortgage & ATM Locations 64 Our History Letter to Our Shareholders, Both of the bank’s operating subsidiaries are experiencing positive earnings and increasing their book Customers and Friends of business. Our investment subsidiary has been recognized as one of the best performing investment divisions with LPL's banking divisions and we expect that to continue. I am glad to report that all this has occurred and has been accomplished this past year where building and strengthening relationships has been our focus. Last year I wrote to you about my experience as a young banker, hired by a financial institution on the verge of collapse and how I had the privilege of being an integral part of the leadership team that brought the institution from near collapse to health. Today, I have the privilege of being President of a Greetings to our Shareholders, Customers and Friends: healthy, strong, growing, and influential financial institution that is a powerful force within the commu- nities it serves. Lone Star National Bank has had the privilege of partnering with individuals, families, This past year has proven to be one of the most challenging and yet rewarding for Executive Management and small businesses and customers of many different types as they strive to reach personal dreams. employees in the history of the company. We have been undergoing significant regulatory scrutiny due to a change Whether it was a loan for their children to attend college, purchase a home, purchase a car, start a in Bank Secrecy requirements for all bank customers. The bank was cited for not having an effective Bank Secrecy small business or build a building, Lone Star National Bank was there. We take our responsibility to our Act/Anti-Money Laundering Program and was ordered to pay a penalty due to the identified program shortfalls. community seriously. We will continue to move forward in our commitment to impact those in the communities we serve. Our company culture demands it, our people have the character to implement In order to address the program shortfalls, we implemented a new callings program that required our it, and the health of our organization enables it. We are not deterred. bankers to re-establish and re-underwrite many of our existing relationships and obtain a better under- standing of our customers and our customers’ customer. Today, I have a message to our employees, our customers, our shareholders and our friends. Team, first of all I would like to thank you for your hard work in getting us through the adversity we have Performing customer due diligence and enhanced due diligence gave many of our employees and undergone for the last two and a half years. Your continued commitment to our vision of impacting the officers an opportunity to visit and re-connect with many long time customers, as well as seek new communities we serve is inspiring. It is because of your efforts we move forward stronger and wiser opportunities, which many customers found refreshing. The current banking regulatory environment from our experiences. I value each one of you and am honored that each of you is a part of our team. makes Knowing Your Customer a priority and fortunately for us, an opportunity to cross sell many new I want our customers to know that we stand ready and fully equipped to continue to partner with you banking services and products, such as remote deposit capture, Internet banking, merchant services and as you strive to achieve your dreams. I want our shareholders to know that Lone Star National Bank our corporate lending program. It also allowed us the opportunity to cross sell our subsidiaries Lone Star remains healthy and strong and we continue growing at all levels. I want our friends to know that we Insurance Services and Lone Star Investment Services. Needless to say, this gave our bankers the opportu- remain committed to the communities we serve. nity to connect with our clients. We at Lone Star National Bank are looking forward to a wonderful and prosperous 2015. We are I have outlined above the issues that the bank has been facing since July 2012. I have done so because committed to move forward and we will. I believe that adversity should not be dismissed but embraced. Adversity leads to growth and without adversity growth would be non-existent. Lone Star National Bank remains a premier financial institution in South Texas. Despite the adversity I have described In friendship, in 2014, I am glad to report the bank has continued to experience healthy earnings. The San Antonio market has grown significantly with the addition of a Key Market S. David Deanda, Jr. Manager. He has helped us increase our presence in the market place and has President helped define our organization in a very competitive market. The bank has experienced loan growth and deposit growth in the San Antonio market place and has finally begun experiencing strong economic growth. $39.99 $240 $36.35 $223 $35.37 $221 $208 $32.88 $29.57 $184 10 11 12 13 14 10 11 12 13 14 4 Per Share Data: Shareholders’ Equity Book Value (Dollars in Millions) $43.25 $42.00 $38.25 $37.50 $35.50 Both of the bank’s operating subsidiaries are experiencing positive earnings and increasing their book of business. Our investment subsidiary has been recognized as one of the best performing investment divisions with LPL's banking divisions and we expect that to continue. I am glad to report that all this 10 11 12 13 14 has occurred and has been accomplished this past year where building and strengthening relationships Stock Price has been our focus. Per Share Last year I wrote to you about my experience as a young banker, hired by a financial institution on the verge of collapse and how I had the privilege of being an integral part of the leadership team that $2,213 $2,184 $2,171 $2,124 brought the institution from near collapse to health. Today, I have the privilege of being President of a $2,092 Greetings to our Shareholders, Customers and Friends: healthy, strong, growing, and influential financial institution that is a powerful force within the commu- nities it serves. Lone Star National Bank has had the privilege of partnering with individuals, families, This past year has proven to be one of the most challenging and yet rewarding for Executive Management and small businesses and customers of many different types as they strive to reach personal dreams. employees in the history of the company. We have been undergoing significant regulatory scrutiny due to a change Whether it was a loan for their children to attend college, purchase a home, purchase a car, start a in Bank Secrecy requirements for all bank customers. The bank was cited for not having an effective Bank Secrecy small business or build a building, Lone Star National Bank was there. We take our responsibility to our Act/Anti-Money Laundering Program and was ordered to pay a penalty due to the identified program shortfalls. community seriously. We will continue to move forward in our commitment to impact those in the 10 11 12 13 14 communities we serve. Our company culture demands it, our people have the character to implement Total Assets In order to address the program shortfalls, we implemented a new callings program that required our it, and the health of our organization enables it. We are not deterred. (Dollars in Millions) bankers to re-establish and re-underwrite many of our existing relationships and obtain a better under- standing of our customers and our customers’ customer. Today, I have a message to our employees, our customers, our shareholders and our friends. Team, first of all I would like to thank you for your hard work in getting us through the adversity we have Performing customer due diligence and enhanced due diligence gave many of our employees and undergone for the last two and a half years. Your continued commitment to our vision of impacting the $21,519 officers an opportunity to visit and re-connect with many long time customers, as well as seek new communities we serve is inspiring. It is because of your efforts we move forward stronger and wiser $15,564 opportunities, which many customers found refreshing.
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