-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SODgTw3oFGkmSmBYHG2mJx4prMwrJ/ELuiusprB8orF61byrAGvO0jKsY2q0WkHG zoc+3WRaRpMV1DMUiDoBtQ== 0000906318-99-000079.txt : 19990802 0000906318-99-000079.hdr.sgml : 19990802 ACCESSION NUMBER: 0000906318-99-000079 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990730 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LCNB CORP CENTRAL INDEX KEY: 0001074902 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26121 FILM NUMBER: 99673789 BUSINESS ADDRESS: STREET 1: P O BOX 59 CITY: LEBANON STATE: OH ZIP: 45036 BUSINESS PHONE: 5139321414 MAIL ADDRESS: STREET 1: P O BOX 59 CITY: LEBANON STATE: OH ZIP: 45036 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter ended June 30, 1999 Commission file number 000-26121 LCNB Corp. ------------------------------------------------------ (Exact name of registrant as specified in its charter) OHIO 31-1626393 - ------------------------------- ------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) Number) 2 North Broadway, Lebanon, Ohio 45036 ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (513) 932-1414 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No The number of shares outstanding of the issuer's common stock, without par value, as of July 26, 1999, was 1,760,000 shares. LCNB Corp. INDEX Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - June 30, 1999, and December 31, 1998 . . . . . . . . . 1 Consolidated Statements of Income - Three and Six Months Ended June 30, 1999 and 1998 . . 2 Consolidated Statements of Comprehensive Income and Changes in Shareholders' Equity - Year Ended December 31, 1998 and Six Months Ended June 30, 1999 . . . . . . . . . . . . . . . . . 3 Consolidated Statements of Cash Flows - Six Months Ended June 30, 1999 and 1998 . . . . . . . 4 Notes to Consolidated Financial Statements . . . . . . . 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . 6-12 Item 3. Quantitative and Qualitative Disclosures about Market Risks . . . . . . . . . . . . . . . . . . 12 Part II. Other Information Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . 13 Item 2. Changes in Securities and Use of Proceeds . . . . . . . 13 Item 3. Defaults by the Company on its Senior Securities . . . . 13 Item 4. Submission of Matters to a Vote of Security Holders . . 13 Item 5. Other Information . . . . . . . . . . . . . . . . . . . 13 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 13 Part I - Financial Information Item 1. Financial Statements LCNB Corp. and Subsidiary Consolidated Balance Sheets At June 30, 1999, and December 31, 1998 (thousands)
June 30, December 31, 1999 1998 (unaudited) (a) ASSETS: Cash and due from banks $ 11,502 16,907 Federal funds sold 4,100 3,800 ------- ------- Total cash and cash equivalents 15,602 20,707 Interest-bearing deposits in banks 5,492 5,492 Federal Reserve Bank stock 647 647 Securities available for sale, at market value 114,465 123,040 Loans 273,744 267,057 Less-allowance for loan losses 2,000 2,000 ------- ------- Net loans 271,744 265,057 Premises and equipment, net 8,360 8,102 Intangible assets 5,018 5,321 Accrued income receivable 3,300 3,017 Other assets 1,525 776 ------- ------- TOTAL ASSETS $426,153 432,159 ======= ======= LIABILITIES: Deposits- Noninterest-bearing $ 47,213 49,972 Interest-bearing 333,430 337,069 ------- ------- Total deposits 380,643 387,041 Accrued interest and other liabilities 3,149 2,919 ------- ------- TOTAL LIABILITIES 383,792 389,960 ------- ------- SHAREHOLDERS' EQUITY: Common stock-no par value, authorized 4,000,000 shares; issued and outstanding 1,760,000 shares 10,560 10,560 Surplus 11,000 11,000 Retained earnings 21,675 19,993 Accumulated other comprehensive (loss) income, net of taxes (874) 646 ------- ------- TOTAL SHAREHOLDERS' EQUITY 42,361 42,199 ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $426,153 432,159 ======= ======= (a) Financial information as of December 31, 1998, has been derived from the audited financial statements of Lebanon Citizens National Bank filed by the Registrant with the Commission on Form S-4.
The accompanying notes to financial statements are an integral part of these statements. LCNB Corp. and Subsidiary Consolidated Statements of Income (In thousands except per share data) (unaudited)
Three Months Ended Six Months Ended June 30 June 30 ------------------ ---------------- 1999 1998 1999 1998 INTEREST INCOME: Interest and fees on loans $5,571 5,768 11,058 11,497 Interest on federal funds sold 103 185 211 411 Interest on deposits in banks 70 60 139 119 Interest on Federal Reserve stock 19 19 19 19 Interest on investment securities- Taxable 1,260 1,168 2,540 2,301 Non-taxable 312 164 622 316 ----- ----- ------ ------ TOTAL INTEREST INCOME 7,335 7,364 14,589 14,663 ----- ----- ------ ------ INTEREST EXPENSE: Interest on deposits 3,223 3,472 6,457 7,080 Interest on short-term borrowings 12 10 20 24 ----- ----- ------ ------ TOTAL INTEREST EXPENSE 3,235 3,482 6,477 7,104 ----- ----- ------ ------ NET INTEREST INCOME 4,100 3,882 8,112 7,559 PROVISION FOR LOAN LOSSES 78 22 124 100 ------ ----- ------ ------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,022 3,860 7,988 7,459 ----- ----- ------ ------ NON-INTEREST INCOME: Trust income 239 191 454 390 Service charges and fees 524 485 1,026 962 Net gain on sale of securities 23 6 23 11 Other operating income 26 25 54 86 ----- ----- ------ ------ TOTAL NON-INTEREST INCOME 812 707 1,557 1,449 ----- ----- ------ ------ NON-INTEREST EXPENSE: Salaries and wages 1,226 1,103 2,426 2,216 Pension and other employee benefits 263 228 619 534 Equipment 118 154 238 304 Occupancy, net 222 251 476 480 State franchise tax 155 145 308 288 Marketing 83 137 187 230 Other 848 663 1,694 1,579 ----- ----- ------ ------ TOTAL NON-INTEREST EXPENSE 2,915 2,681 5,948 5,631 ----- ----- ------ ------ INCOME BEFORE INCOME TAXES 1,919 1,886 3,597 3,277 PROVISION FOR INCOME TAXES 530 565 1,035 980 ----- ----- ------ ------ NET INCOME $1,389 1,321 2,562 2,297 ===== ===== ====== ====== Basic earnings per common share $ 0.79 0.75 1.46 1.31 Average shares outstanding (000's) 1,760 1,760 1,760 1,760
The accompanying notes to financial statements are an integral part of these statements. LCNB Corp. and Subsidiary Consolidated Statements of Comprehensive Income and Changes in Shareholders' Equity (thousands) (unaudited)
Accumulated Other Total Common Retained Comprehensive Shareholders' Comprehensive Shares Surplus Earnings Income Equity Income Balance January 1, 1998 $10,560 11,000 17,010 86 38,656 Comprehensive Income: Net income 5,447 5,447 $5,447 Transition adjustment for the effect of a change in accounting principle 473 473 473 Net unrealized gain on available-for-sale securities (net of taxes of $124) 241 241 241 Reclassification adjustment for net realized gain on sale of available-for-sale securities included in net income (net of taxes of $80) (154) (154) (154) ----- Total comprehensive income $6,007 ===== Cash dividends declared ($1.40 per share) (2,464) (2,464) ------ ------ ------ ------ ------ Balance December 31, 1998 $10,560 11,000 19,993 646 42,199 Comprehensive Income: Net income 2,562 2,562 $2,562 Net unrealized loss on available-for-sale securities (net of tax benefit of $775) (1,505) (1,505) (1,505) Reclassification adjustment for net realized gain on sale of available-for-sale securities included in net income (net of taxes of $8) (15) (15) (15) ----- Total comprehensive income $1,042 ===== Cash dividends declared ($.50 per share) (880) (880) ------ ------ ------ ------ ------ Balance June 30, 1999 $10,560 11,000 21,675 (874) 42,361 ====== ====== ====== ====== ======
The accompanying notes to financial statements are an integral part of these statements. LCNB Corp. and Subsidiary Consolidated Statements of Cash Flows (thousands) (unaudited)
Six Months Ended June 30 --------------------- 1999 1998 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 2,562 2,297 Adjustments for non-cash items - Depreciation and amortization 809 791 Deferred loan origination fees (179) (331) Provision for loan losses 100 100 Provision for deferred taxes (25) (43) Realized gains on sales of securities (23) (11) Origination of mortgage loans for sale (2,324) (5,860) Proceeds from sales of mortgage loans 2,324 5,860 (Increase) decrease in income receivable (283) (88) Increase (decrease) in interest payable and other accrued expenses, net 289 (700) ------ ------ NET CASH PROVIDED BY OPERATING ACTIVITIES 3,250 2,015 ------ ------ CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities of securities available for sale 26,101 2,680 Proceeds from maturities of securities held to maturity - 18,273 Proceeds from sales of securities available for sale 8,674 296 Purchases of securities available for sale (28,581) (10,507) Purchases of securities held to maturity - (2,115) Net (increase) in loans (6,681) (7,166) Purchases of premises and equipment (590) (332) Proceeds from sale of premises - 274 ------ ------ NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (1,077) 1,403 ------ ------ CASH FLOWS FROM FINANCING ACTIVITIES: Net (decrease) in deposits (6,398) (8,787) Cash dividends paid (880) (704) ------ ------ NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (7,278) (9,491) ------ ------ NET CHANGE IN CASH AND CASH EQUIVALENTS (5,105) (6,073) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 20,707 30,361 ------ ------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $15,602 24,288 ====== ====== SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid $ 6,602 6,772 Income taxes paid 1,345 944
The accompanying notes to financial statements are an integral part of these statements. LCNB Corp. and Subsidiary Notes to Consolidated Financial Statements (Unaudited) NOTE 1 - BASIS OF PRESENTATION Effective May 18, 1999, Lebanon Citizens National Bank ("Lebanon Citizens"), was reorganized into a one-bank holding company structure. Substantially all of the assets, liabilities and operations of LCNB Corp., the new consolidated holding company, are attributable to its wholly-owned subsidiary, Lebanon Citizens. The accompanying unaudited consolidated financial statements include the accounts of LCNB Corp. and Lebanon Citizens. The financial information prior to the reorganization consists of Lebanon Citizens. The statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the unaudited consolidated financial statements include all adjustments (consisting of normal, recurring accruals) considered necessary for a fair presentation of financial position, results of operations and cash flows for the interim periods. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Results of operations for the three months and six months ended June 30, 1999 are not necessarily indicative of the results to be expected for the full year ending December 31, 1999. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements, accounting policies and financial notes thereto included in LCNB Corp.'s Form S-4 filed with the Commission. NOTE 2 - EARNINGS PER SHARE Basic earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding during the period. LCNB Corp.'s capital structure includes no potential for dilution. There are no warrants, options or other arrangements that would increase the number of shares outstanding. NOTE 3 - RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". In most instances the standard, once adopted, precludes any held-to- maturity security from being designated as a hedged item. Lebanon Citizens adopted SFAS No. 133 in the fourth quarter of 1998. To provide the flexibility in the future to designate securities as hedged items the Bank recategorized its held-to-maturity securities as available for sale. The amortized cost and related unrealized net gain of the transferred securities was $42,768,000 and $716,000, respectively, at the date of transfer. This change in accounting principle had no effect on reported net income. Comprehensive income for the year ended December 31, 1998 increased $473,000 after income taxes of $243,000. LCNB Corp. and Lebanon Citizens National Bank Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations COMPARATIVE FINANCIAL INFORMATION Effective May 18, 1999, Lebanon Citizens National Bank was reorganized into a one-bank holding company structure. Prior to that date, the financial information presented represents the assets, liabilities and operations of Lebanon Citizens. Comparative earnings per share information is presented on a pro forma basis. FORWARD-LOOKING STATEMENTS Certain matters disclosed herein may be deemed to be forward-looking statements that involve risks and uncertainties, including regulatory policy changes, interest rate fluctuations, loan demand, loan delinquencies and losses, and other risks. Actual strategies and results in future time periods may differ materially from those currently expected. Such forward-looking statements represent management's judgment as of the current date. The Company disclaims, however, any intent or obligation to update such forward-looking statements. RESULTS OF OPERATIONS LCNB Corp. earned $1.389 million for the three months ended June 30, 1999 compared to $1.321 million for the three months ended June 30, 1998. Earnings per share were $.79 for the second quarter of 1999, up 5% from the $.75 per share earned in the second quarter of 1998. Annualized performance ratios included a return on average assets of 1.29% and a return on average equity of 12.92%, compared with the same ratios for the second quarter of 1998 of 1.28% and 13.24%, respectively. For the first six months of 1999 LCNB Corp. earned $2.562 million compared to $2.297 million for the first six months of 1998. Earnings per share were $1.46 in 1999, up 11% from the $1.31 per share earned the same period in 1998. Return on average assets was 1.21% for the first six months of 1999 and return on average equity was 12.01% for the same period. The comparable ratios for the first six months of 1998 were 1.12% and 11.66%, respectively. NET INTEREST INCOME The table below presents net interest income, average balances and average rates. Three Months Ended Six Months Ended June 30, June 30, 1999 1998 1999 1998 NET INTEREST INCOME (in thousands) Book basis $ 4,100 3,882 8,112 7,559 Tax equivalent adjustment 131 69 260 134 -------- ------- ------- ------- Fully taxable basis $ 4,231 3,951 8,372 7,693 ======== ======= ======= ======= Three Months Ended Six Months Ended June 30, June 30, 1999 1998 1999 1998 AVERAGE BALANCES (in thousands) Interest-earning assets $400,118 386,136 398,274 385,461 Interest-bearing liabilities 336,807 328,250 335,366 330,181 ------- ------- ------- ------- Earning assets financed by noninterest-bearing funds $ 63,311 57,886 62,908 55,280 ======= ======= ======= ======= AVERAGE RATES (fully taxable basis) Yield on interest-earning assets 7.48% 7.72% 7.52% 7.74% Cost of interest-bearing liabilities 3.85 4.25 3.89 4.34 ---- ---- ---- ---- Interest rate spread 3.63 3.47 3.63 3.40 Contribution of noninterest- bearing funds .61 .63 .61 .62 ---- ---- ---- ---- Net interest margin 4.24% 4.10% 4.24% 4.02% ==== ==== ==== ==== Net interest income on a fully taxable basis for the second quarter of 1999 totaled $4.231 million, up $280 thousand, or 7.1%, from the second quarter of 1998. The $280 thousand increase in net interest income was primarily due to a $13.9 million increase in average earning assets and a 14 basis point increase in the net interest margin. Net interest income for the first six months of 1999 totaled $8.372 million; up $679 thousand, or 8.8% from the first six months of 1998. The $679 thousand increase was primarily due to a $12.8 million increase in average earning assets and a 22 basis point increase in the net interest margin. The net interest margin increased from 4.10% in the second quarter of 1998 to 4.24% in the second quarter of 1999. This 14 basis point increase was due in part to a 40 basis point decline in the cost of average interest-bearing liabilities, partially offset by a 24 basis point decline in the yield on average interest-earning assets. The decline in the cost of average interest-bearing funds resulted from the replacement of higher cost time deposits with lower cost savings deposits. The decline in the yield on average interest-earning assets is due to lower yields attributable to commercial loans and mortgage loans. The net interest margin increased from 4.02% in the first six months of 1998 to 4.24% in the first six months of 1999. This 22 basis point increase resulted from a 45 basis point decline in the cost of interest- bearing liabilities partially offset by a 22 basis point decline in yield on interest-earning assets. These trends were attributable to the same factors as those noted in the quarterly net interest margin comparison above. Average interest-earning assets totaled $400.1 million for the second quarter of 1999, up $13.9 million from the same period in 1998. The increase was primarily attributable to increases in commercial loans and securities. Average earning assets for the six month period ended June 30, 1999 remained relatively stable when compared with the comparable period of 1998. Average interest-bearing liabilities totaled $336.8 million for the second quarter of 1999, up $8.6 million from the same period in 1998. Average interest-bearing liabilities totaled $335.4 million for the six months ended June 30, 1999, an increase of $5.2 million from the six month period ended June 30, 1998. PROVISION AND ALLOWANCE FOR LOAN LOSSES The total provision for loan losses is determined based upon management's evaluation as to the amount needed to maintain the allowance for credit losses at a level considered appropriate in relation to the risk of losses inherent in the portfolio. The total loan loss provision and the other changes in the allowance for loan losses are shown below. Quarter Ended Six Months Ended June 30, June 30, 1999 1998 1999 1998 (thousands) (thousands) Balance, beginning of period $2,000 2,250 2,000 2,200 ----- ----- ----- ----- Charge-offs 88 51 140 84 Recoveries 10 7 16 12 ----- ----- ----- ----- Net charge-offs 78 44 124 72 ----- ----- ----- ----- Provision for loan losses 78 22 124 100 ----- ----- ----- ----- Balance, end of period $2,000 2,228 2,000 2,228 ====== ====== ====== ====== Of the total charge-offs so far in 1999, $126,000 or 90% is attributable to consumer loans. For the first six months of 1998, consumer loans charged off amounted to $59,000 or 70% of total charge-offs. On June 30, 1999, LCNB adopted a new uniform charge-off policy for consumer, credit card and home mortgage loans as mandated by the Federal Financial Institution's Examination Council for all banks and thrifts. It includes a requirement to charge-off open-end credit at 180 days delinquency and closed-end credit at 120 days delinquency. While this policy change resulted in an increase in net charge-offs in the second quarter and first six months of 1999 compared with the comparable period of 1998, management believes that no significant difference will occur prospectively in net charge-offs as a result of this policy change. The following table sets forth information regarding the past-due, non-accrual and renegotiated loans of the Bank at the dates indicated: June 30 December 31 1999 1998 -------- ----------- (thousands) Loans accounted for on non-accrual basis $ - - Accruing loans which are past due 90 days or more 34 374 Renegotiated loans - - -- --- Total $34 374 == === The decrease in accruing loans which are past due 90 days or more is due primarily to the settlement of a large commercial credit in the first half of 1999 as well as the FFIEC required change in the charge-off policy mentioned above. NON-INTEREST INCOME Non-interest income of $812 thousand increased $105 thousand, or 14.9% in the second quarter of 1999 compared to the second quarter of 1998. Trust income of $239 thousand increased $48 thousand, or 25.1%, from the second quarter of 1998 due to an increase in estate fees, as well as an increase in the market value of assets under management on which fees are based. Service charges and fees increased 8.0% due to an increase in ATM fees resulting from five additional ATM machines, a rate increase in the ATM transaction fee in the second quarter of 1998, and a larger base of cardholders and merchant relationships principally resulting from greater penetration of markets acquired with branch purchases in September 1997. Non-interest income of $1.557 million in the first six months of 1999 increased $108 thousand, or 7.5%, compared with the first six months in 1998 due primarily to the reasons mentioned in the preceding paragraph. The decline in Other Operating Income was attributable to a gain recorded in 1998 on the sale of property in connection with the consolidation of branches in Waynesville, which did not recur in 1999. NON-INTEREST EXPENSE Total non-interest expense increased $234 thousand, or 8.7%, in the second quarter 1999 compared with the second quarter 1998. The increase was due in part to labor costs, including pension and other benefits, relating to salary increases. Other expenses also contributed to this increase as a result of increased volumes of ATM and credit card activity, a change in strategy of paying for correspondent banking analysis charges rather than maintaining higher levels of non-interest bearing balances, and consulting fees. These increases were partially offset by lower marketing and equipment costs. Total non-interest expense increased $317 thousand, or 5.6%, in the six months ended June 30, 1999 compared with the first six months of 1998. The increase was primarily due to the same factors as noted above. In addition, telecommunication costs increased due to branch networking- related enhancements. FINANCIAL CONDITION The following table highlights the changes in the balance sheet. The analysis uses quarterly averages to give a better indication of balance sheet trends.
CONDENSED AVERAGE BALANCE SHEETS (thousands) 2nd Qtr. 1st Qtr. 4th Qtr. 1999 1999 1998 ASSETS Interest-earning: Interest-bearing deposits with banks $ 5,492 5,465 5,378 Federal funds sold 8,737 9,060 14,223 Securities available for sale 118,650 117,599 107,706 Loans 267,239 264,285 269,528 ------- ------- ------- Total interest-earning assets 400,118 396,409 396,835 ------- ------- ------- Noninterest-earning: Cash and due from banks 15,331 14,642 15,151 All other assets 17,245 17,211 17,072 Allowance for credit losses (2,006) (2,002) (2,085) ------- ------- ------- Total assets $430,688 426,260 426,973 ======= ======= ======= LIABILITIES Interest bearing: Interest-bearing deposits $335,712 333,425 335,416 Short-term borrowings 1,095 484 823 ------- ------- ------- Total interest-bearing liabilities 336,807 333,909 336,239 Noninterest-bearing: Noninterest-bearing deposits 49,209 47,460 46,630 All other liabilities 1,558 1,982 2,124 ------- ------- ------- Total liabilities 387,574 383,351 384,993 SHAREHOLDERS' EQUITY 43,114 42,909 41,980 ------- ------- ------- Total liabilities and shareholders' equity $430,688 426,260 426,973 ======= ======= =======
Total average assets increased $4.4 million in the second quarter of 1999 from the first quarter and $3.7 million from the fourth quarter of 1998. The increase from the first quarter is primarily due to growth in the commercial loan portfolio. The increase from the fourth quarter of 1998 is due to purchases of higher taxable equivalent yielding tax-exempt securities, partially offset by a reduction in Federal funds sold. Average interest-bearing liabilities increased $2.9 million from the first quarter of 1999 and $.6 million from the fourth quarter of 1998. Average non-interest bearing deposits increased $1.7 million from the first quarter of 1999 and $2.6 million from the fourth quarter of 1998. REGULATORY CAPITAL Lebanon Citizens is required by regulators to meet certain minimum levels of capital adequacy. These are expressed in the form of certain ratios. Capital is separated into Tier I capital (essentially shareholders' equity less goodwill and other intangibles) and Tier II capital (essentially the allowance for loan losses limited to 1.25% of risk- weighted assets). The first two ratios, which are based on the degree of credit risk in Lebanon Citizens' assets, provide for weighting assets based on assigned risk factors and include off-balance sheet items such as loan commitments and stand-by letters of credit. The ratio of Tier I capital to risk-weighted assets must be at least 4.0% and the ratio of Total capital (Tier 1 capital plus Tier 2 capital) to risk-weighted assets must be at least 8.0%. The capital leverage ratio supplements the risk-based capital guidelines. Banks are required to maintain a minimum ratio of Tier 1 capital to adjusted quarterly average total assets of 3.0%. A summary of the regulatory capital and capital ratios of Lebanon Citizens follows: At At June 30, December 31, 1999 1998 Regulatory Capital: Shareholders' equity $42,242 42,199 Goodwill and other intangibles (5,018) (5,321) Net unrealized securities gains 874 (646) ------ ------ Tier 1 risk-based capital 38,098 36,232 Eligible allowance for loan losses 2,000 2,000 ------ ------ Total risk-based capital $40,098 38,232 ======= ====== Capital Ratios: Total risk-based 15.3% 15.1% Tier 1 risk-based 14.6% 14.3% Leverage 9.0% 8.6% LIQUIDITY Liquidity is the ability to have funds available at all times to meet the commitments of Lebanon Citizens. Asset liquidity is provided by cash and assets which are readily marketable or pledgeable or which will mature in the near future. Liquid assets included cash and deposits in banks, federal funds sold and securities available for sale. Liquidity is also provided by access to core funding sources, primarily core depositors in the bank's trade area. Lebanon Citizens does not solicit brokered deposits as a funding source. The liquidity of Lebanon Citizens is enhanced by the fact that 87% of total deposits at June 30, 1999 were "core" deposits. Core deposits, for this purpose, are defined as total deposits less public funds and certificates of deposit greater than $100,000. At June 30, 1999, Lebanon Citizens liquid assets amounted to $135.6 million or 32% of total gross assets, down from $143.7 million or 33% at December 31, 1998. Secondary sources of liquidity include Lebanon Citizens' ability to sell loan participations and purchase federal funds. Management closely monitors the level of liquid assets available to meet ongoing funding needs. It is management's intent to maintain adequate liquidity so that sufficient funds are readily available at a reasonable cost. Loans to deposits were 72% and 69%, at June 30, 1999 and December 31, 1998, respectively. Lebanon Citizens experienced no liquidity or operational problems as a result of the current liquidity levels. YEAR 2000 COMPLIANCE As discussed in the "Management Discussion and Analysis of Financial Condition and Results of Operations" section of LCNB Corp.'s Form S-4, as amended, Lebanon Citizens initiated a company-wide program in April 1997 to address Year 2000 concerns. Lebanon Citizens adopted the Federal Financial Institutions Examination Council guidelines. This five-step approach included the following phases: Awareness, Assessment, Renovation, Validation and Implementation. Lebanon Citizens has concluded its fourth phase of the program. All computer operating systems have been tested with no detected errors. The readiness of its vendors, major customers and other third parties that do business with Lebanon Citizens have been reviewed with satisfactory results. Additionally, all non-information technology systems were examined and none were found to be date sensitive, and therefore are compliant. A supplementary contingency plan, as a back up, was developed in 1999 to address procedures to be followed, potential liquidity needs, etc. in the event of unforeseen issues or problems. Lebanon Citizens is currently concentrating on educating its customers. No material costs were incurred through the first six months of 1999 regarding the Y2K compliance issues and no material costs are expected to be incurred for the remainder of 1999. Item 3. Quantitative and Qualitative Disclosures about Market Risks QUANTITATIVE AND QUALITATIVE DISLCOSURES ABOUT MARKET RISKS For a discussion of Lebanon Citizens' asset and liability management policies and gap analysis for the year ended December 31, 1998 see Item 3, Quantitative and Qualitative Disclosures about Market Risks in the recently filed Form S-4, as amended for the year ended December 31, 1998. There have been no material changes in Lebanon Citizens' market risks, which for Lebanon Citizens is primarily interest rate risk. PART II. OTHER INFORMATION LCNB Corp. and Lebanon Citizens National Bank Item 1. Legal Proceedings - Not Applicable Item 2. Changes in Securities and Use of Proceeds - Not Applicable Item 3. Defaults by the Company on its Senior Securities - Not Applicable Item 4. Submission of Matters to a Vote of Security Holders - LCNB Corp. has not submitted any matters to a vote of securities holders during the period covered by this report. However, LCNB Corp.'s wholly-owned subsidiary, Lebanon Citizens submitted to its shareholders the reorganization of Lebanon Citizens into a holding company structure at a special meeting of shareholders duly called and held on May 18, 1999. At the special meeting, the Lebanon Citizens shareholders authorized the merger of Lebanon Citizens with and into an interim national bank, a wholly-owned subsidiary of LCNB Corp., formed for the purpose of facilitating the reorganization. The votes associated with the proposal were: 41,053 for the proposal, 100 against and zero abstaining. The reorganization transaction was consummated on May 18, 1999 and as a result, the shareholders of Lebanon Citizens became the shareholders of LCNB Corp. and Lebanon Citizens became a wholly-owned subsidiary of LCNB Corp. Also in connection with the reorganization, LCNB Corp. became a reporting company pursuant to Section 12(g) of the Securities Exchange Act of 1934. Item 5. Other Information - Not Applicable Item 6. Exhibits and Reports on Form 8-K a. Exhibits Exhibit No. Description 27 Financial Data Schedule for the Six Months Ended June 30, 1999. b. LCNB Corp. was not required to file Form 8-K during the quarter ended June 30, 1999. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LCNB Corp. Registrant Date: July 30, 1999 /s/Steve P. Foster -------------------- Steve P. Foster Vice President and Chief Financial Officer EX-27 2
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE QUARTERLY REPORT FOR LCNB CORP. ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 11,502 5,492 4,100 0 114,465 0 0 273,744 2,000 426,153 380,643 1,728 1,421 0 0 0 10,560 31,801 426,153 11,058 3,162 369 14,589 6,457 6,477 8,112 124 23 5,948 3,597 3,597 0 0 2,562 1.46 1.46 7.52 0 34 0 0 2,000 140 16 2,000 0 0 2,000
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