-----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, OMEnI28dl2xFWr7+U4YOXGa+a/Obo1WGDalWqQChurWANDQ/7fPzsTmG1vU7Zxo+ CNkbRZmyqRwjJk+/h4E4xw== 0000906318-99-000110.txt : 19991101 0000906318-99-000110.hdr.sgml : 19991101 ACCESSION NUMBER: 0000906318-99-000110 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991029 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: 99737477 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 September 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 October 28, 1999, was 1,760,000 shares. LCNB Corp. INDEX Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - September 30, 1999, and December 31, 1998 . . . . . . . 1 Consolidated Statements of Income - Three and Nine Months Ended September 30, 1999 and 1998. . . . . . . . . . . . . . . . . . . . . . . . 2 Consolidated Statements of Comprehensive Income and Changes in Shareholders' Equity - Year Ended December 31, 1998 and Nine Months Ended September 30, 1999. . . . . . . . . . . . . . . . 3 Consolidated Statements of Cash Flows - Nine Months Ended September 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 September 30, 1999, and December 31, 1998 (thousands)
September 30, December 31, 1999 1998 (unaudited) (a) ASSETS: Cash and due from banks $ 14,454 16,907 Federal funds sold 2,500 3,800 ------- ------- Total cash and cash equivalents 16,954 20,707 Interest-bearing deposits in banks 5,492 5,492 Federal Reserve Bank stock 647 647 Securities available for sale, at market value 113,533 123,040 Loans 281,398 267,057 Less-allowance for loan losses 2,005 2,000 ------- ------- Net loans 279,393 265,057 Premises and equipment, net 8,305 8,102 Intangible assets 4,864 5,321 Accrued income receivable 3,278 3,017 Other assets 1,359 776 ------- ------- TOTAL ASSETS $433,825 432,159 ======= ======= LIABILITIES: Deposits- Noninterest-bearing $ 46,105 49,972 Interest-bearing 339,550 337,069 ------- ------- Total deposits 385,655 387,041 Accrued interest and other liabilities 4,801 2,919 ------- ------- TOTAL LIABILITIES 390,456 389,960 ------- ------- 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 22,640 19,993 Accumulated other comprehensive (loss) income, net of taxes (831) 646 ------- ------- TOTAL SHAREHOLDERS' EQUITY 43,369 42,199 ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $433,825 432,159 ======= ======= (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 Nine Months Ended September 30 September 30 1999 1998 1999 1998 INTEREST INCOME: Interest and fees on loans $5,785 5,836 16,843 17,333 Interest on federal funds sold 83 198 294 609 Interest on deposits in banks 71 60 210 179 Interest on Federal Reserve stock - - 19 19 Interest on investment securities- Taxable 1,262 1,075 3,802 3,375 Non-taxable 315 249 937 566 ------ ------ ------ ------- TOTAL INTEREST INCOME 7,516 7,418 22,105 22,081 ------ ------ ------ ------- INTEREST EXPENSE: Interest on deposits 3,328 3,509 9,785 10,589 Interest on short-term borrowings 11 13 31 37 ------ ------ ------ ------- TOTAL INTEREST EXPENSE 3,339 3,522 9,816 10,626 ------ ------ ------ ------- NET INTEREST INCOME 4,177 3,896 12,289 11,455 PROVISION FOR LOAN LOSSES 42 83 166 183 ------ ------ ------ ------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,135 3,813 12,123 11,272 ------ ------ ------ ------- NON-INTEREST INCOME: Trust income 255 225 709 615 Service charges and fees 578 504 1,604 1,466 Net gain on sale of securities - 5 23 16 Other operating income 22 19 76 105 ------ ------ ------ ------- TOTAL NON-INTEREST INCOME 855 753 2,412 2,202 ------ ------ ------ ------- NON-INTEREST EXPENSE: Salaries and wages 1,304 1,103 3,730 3,319 Pension and other employee benefits 283 260 902 794 Equipment 133 105 371 409 Occupancy, net 221 187 697 667 State franchise tax 157 146 465 434 Marketing 80 78 267 308 Intangible amortization 154 151 457 447 Other 675 636 2,066 1,919 ------ ------ ------ ------- TOTAL NON-INTEREST EXPENSE 3,007 2,666 8,955 8,297 ------ ------ ------ ------- INCOME BEFORE INCOME TAXES 1,983 1,900 5,580 5,177 PROVISION FOR INCOME TAXES 578 581 1,613 1,561 ------ ------ ------ ------- NET INCOME 1,405 1,319 3,967 3,616 ====== ====== ====== ======= Basic earnings per common share $ 0.80 0.75 2.25 2.05 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 3,967 3,967 $3,967 Net unrealized loss on available-for-sale securities (net of tax benefit of $753) (1,462) (1,462) (1,462) 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 $2,490 ======= Cash dividends declared ($.75 per share) (1,320) (1,320) ------ ------ ------ ------- ------ Balance September 30, 1999 $10,560 11,000 22,640 (831) 43,369 ====== ====== ====== ======= ======
The accompanying notes to financial statements are an integral part of these statements. LCNB Corp. and Subsidiary Consolidated Statements of Cash Flows (thousands) (unaudited)
Nine Months Ended September 30 1999 1998 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 3,967 3,616 Adjustments for non-cash items - Depreciation and amortization 1,321 1,115 Provision for loan losses 166 183 Deferred taxes provision (benefit) (62) (135) Realized gains on sales of securities (23) (16) Origination of mortgage loans for sale (2,324) (8,039) Proceeds from sales of mortgage loans 2,324 8,039 (Increase) decrease in income receivable (261) (339) Increase (decrease) in interest payable and other accrued expenses, net 2,122 (3,092) ----- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES 7,230 1,332 ----- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities of securities available for sale 32,319 3,099 Proceeds from maturities of securities held to maturity - 25,172 Proceeds from sales of securities available for sale 8,175 296 Purchases of securities available for sale (33,638) (22,942) Purchases of securities held to maturity - (2,367) Net (increase) in loans (14,422) (5,437) Purchases of premises and equipment (712) (798) Proceeds from sale of premises - 274 ----- ------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (8,278) (2,703) ----- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Net (decrease) in deposits (1,385) (3,754) Cash dividends paid (1,320) (1,056) ----- ------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (2,705) (4,810) ----- ------- NET CHANGE IN CASH AND CASH EQUIVALENTS (3,753) (6,181) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 20,707 30,361 ----- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $16,954 24,180 ====== ======= SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid $ 9,821 10,631 Income taxes paid 1,934 1,719
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 nine months ended September 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 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. LCNB Corp. disclaims, however, any intent or obligation to update such forward-looking statements. RESULTS OF OPERATIONS LCNB Corp. earned $1.405 million for the three months ended September 30, 1999 compared to $1.319 million for the three months ended September 30, 1998. Earnings per share were $.80 for the third quarter of 1999, up 7% from the $.75 per share earned in the third quarter of 1998. Annualized performance ratios included a return on average assets of 1.29% and a return on average equity of 12.95%, compared with the same ratios for the third quarter of 1998 of 1.25% and 12.71%, respectively. For the first nine months of 1999 LCNB Corp. earned $3.967 million compared to $3.616 million for the first nine months of 1998. Earnings per share were $2.25 in 1999, up 9.8% from the $2.05 per share earned the same period in 1998. Return on average assets was 1.23% for the first nine months of 1999 and return on average equity was 12.33% for the same period. The comparable ratios for the first nine months of 1998 were 1.16% and 12.02%, respectively. NET INTEREST INCOME The table below presents net interest income, average balances and average rates. Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 1999 1998 NET INTEREST INCOME (in thousands) Book basis $ 4,177 3,896 12,289 11,455 Tax equivalent adjustment 132 105 392 239 -------- ----- ------- ------- Fully taxable basis $ 4,309 4,001 12,681 11,694 ======== ===== ======= ======== Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 1999 1998 AVERAGE BALANCES (in thousands) Interest-earning assets $403,175 390,245 399,925 387,287 Interest-bearing liabilities 340,120 329,892 336,082 329,183 -------- ----- ------- ------- Earning assets financed by noninterest-bearing funds $ 63,055 60,353 63,843 58,104 ======== ===== ======= ======== AVERAGE RATES (fully taxable basis) Yield on interest-earning assets 7.52% 7.65% 7.54% 7.71% Cost of interest-bearing liabilities 3.89 4.24 3.90 4.32 -------- ----- ------- ------- Interest rate spread 3.63 3.41 3.64 3.39 Contribution of noninterest-bearing funds .61 .66 .60 .65 -------- ----- ------- ------- Net interest margin 4.24% 4.07% 4.24% 4.04% ======== ===== ======= ======== Net interest income on a fully taxable basis for the third quarter of 1999 totaled $4.309 million, up $308 thousand, or 7.7%, from the third quarter of 1998. The $308 thousand increase in net interest income was primarily due to a $12.9 million increase in average earning assets and a 17 basis point increase in the net interest margin. Net interest income for the first nine months of 1999 totaled $12.681 million; up $987 thousand, or 8.4% from the first nine months of 1998. The $987 thousand increase was primarily due to a $12.6 million increase in average earning assets and a 20 basis point increase in the net interest margin. The net interest margin increased from 4.07% in the third quarter of 1998 to 4.24% in the third quarter of 1999. This 17 basis point increase was due in part to a 35 basis point decline in the cost of average interest- bearing liabilities, partially offset by a 13 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 4.04% in the first nine months of 1998 to 4.24% in the first nine months of 1999. This 20 basis point increase resulted from a 42 basis point decline in the cost of interest- bearing liabilities partially offset by a 17 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 $403.2 million for the third quarter of 1999, up $12.9 million from the same period in 1998. The increase was primarily attributable to increases in commercial loans and securities. Average earning assets for the nine month period ended September 30, 1999 remained relatively stable when compared with the comparable period of 1998. Average interest-bearing liabilities totaled $340.1 million for the third quarter of 1999, up $10.2 million from the same period in 1998. Average interest-bearing liabilities totaled $336.1 million for the nine months ended September 30, 1999, an increase of $6.9 million from the nine month period ended September 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 Nine Months Ended September 30, September 30, 1999 1998 1999 1998 (thousands) (thousands) Balance, beginning of period $2,000 2,228 2,000 2,200 ------ ----- ----- ------ Charge-offs 64 69 204 153 Recoveries 27 8 43 20 ------ ----- ----- ------ Net charge-offs 37 61 161 133 ------ ----- ----- ------ Provision for loan losses 42 83 166 183 ------ ----- ----- ------ Balance, end of period $2,005 2,250 2,005 2,250 ====== ===== ===== ====== Of the total charge-offs so far in 1999, $204,000 is attributable to consumer loans. For the first nine months of 1998, consumer loans charged off amounted to $128,000. One 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 first nine 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: September 30, December 31, 1999 1998 . (thousands) Loans accounted for on non-accrual basis $ - - Accruing loans which are past due 90 days or more 68 374 Renegotiated loans - - ----- ------ Total $68 374 ===== ======= 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 $855 thousand increased $102 thousand, or 13.5% in the third quarter of 1999 compared to the third quarter of 1998. Trust income of $255 thousand increased $30 thousand, or 13.3%, from the third 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 14.5% due to an increase in ATM fees resulting from five additional ATM machines, 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 $2.412 million in the first nine months of 1999 increased $210 thousand, or 9.5%, compared with the first nine 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 $341 thousand, or 12.8%, in the third quarter 1999 compared with the third quarter 1998. The increase was due in part to labor costs, including pension and other benefits, relating to salary increases. Total non-interest expense increased $658 thousand, or 7.9%, in the nine months ended September 30, 1999 compared with the first nine months of 1998. In addition to the increase in labor costs noted above, telecommunication costs increased due to branch networking-related enhancements, a change in strategy of paying for correspondent banking analysis charges rather than maintaining non-interest bearing balances resulted in increased expense and consulting fees increased. 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) 3rd Qtr. 2nd Qtr. 1st Qtr. 1999 1999 1999 ASSETS Interest-earning: Interest-bearing deposits with banks $ 5,492 5,492 5,465 Federal funds sold 6,550 8,737 9,060 Securities available for sale 113,475 118,650 117,599 Loans 277,658 267,239 264,285 ------- ------- -------- Total interest-earning assets 403,175 400,118 396,409 ------- ------- -------- Noninterest-earning: Cash and due from banks 15,154 15,331 14,642 All other assets 17,448 17,245 17,211 Allowance for credit losses (2,003) (2,006) (2,002) ------- ------- -------- Total assets $433,774 430,688 426,260 ======= ======= ======== LIABILITIES Interest bearing: Interest-bearing deposits $339,048 335,712 333,425 Short-term borrowings 1,072 1,095 484 ------- ------- -------- Total interest-bearing liabilities 340,120 336,807 333,909 Noninterest-bearing: Noninterest-bearing deposits 49,261 49,209 47,460 All other liabilities 1,274 1,558 1,982 ------- ------- -------- Total liabilities 390,655 387,574 383,351 SHAREHOLDERS' EQUITY 43,119 43,114 42,909 ------- ------- -------- Total liabilities and shareholders' equity $433,774 430,688 426,260 ======= ======= ======== Total average assets increased $3.1 million in the third quarter of 1999 from the second quarter and increased $7.5 million from the first quarter of 1999. Although total average assets remained relatively stable in the third quarter, average loans increased $10.4 million primarily due to continued growth in the commercial loan portfolio. The growth in the commercial loan portfolio also caused a $7.5 million increase in average total assets in the third quarter of 1999 when compared to the first quarter. Average interest-bearing liabilities increased $3.3 million from the second quarter of 1999 and $6.2 million from the first quarter. Average noninterest-bearing deposits remained relatively stable in the third quarter of 1999 when compared to the second quarter and increased $1.8 million from the first quarter. 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 September 30, December 31, 1999 1998 Regulatory Capital: Shareholders' equity $43,369 42,199 Goodwill and other intangibles (4,864) (5,321) Net unrealized securities (gains)losses 831 (646) ------- ----- Tier 1 risk-based capital 39,336 36,232 Eligible allowance for loan losses 2,005 2,000 ------- ----- Total risk-based capital $41,341 38,232 ======= ====== Capital Ratios: Total risk-based 15.3% 15.1% Tier 1 risk-based 14.6% 14.3% Leverage 9.2% 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 85% of total deposits at September 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 September 30, 1999, Lebanon Citizens liquid assets amounted to $136.0 million or 31% 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 73% and 69%, at September 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 nine 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 Not Applicable 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 Nine Months Ended September 30, 1999. b. LCNB Corp. was not required to file Form 8-K during the quarter ended September 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: October 29, 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 SEPTEMBER 30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 14,454 5,492 2,500 0 133,533 0 0 281,398 2,005 433,825 385,655 3,037 1,764 0 0 0 10,560 32,809 433,825 16,843 4,739 523 22,105 9,785 9,816 12,289 166 23 8,955 5,580 5,580 0 0 3,967 2.25 2.25 7.54 0 68 0 0 2,000 204 43 2,005 0 0 2,005
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