-----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, Sq9if4iXB5DMWzy5MT+IDLmbBbxqKUDMWsBmyBD16iWFd0ZVEY5JEMyp2KOJ3ap1 v5+2npIwKBRiZRrJxLPmkA== 0001012364-03-000018.txt : 20030805 0001012364-03-000018.hdr.sgml : 20030805 20030805165330 ACCESSION NUMBER: 0001012364-03-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030805 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LCNB CORP CENTRAL INDEX KEY: 0001074902 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 311626393 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-26121 FILM NUMBER: 03824239 BUSINESS ADDRESS: STREET 1: 2 NORTH BROADWAY CITY: LEBANON STATE: OH ZIP: 45036 BUSINESS PHONE: 5139321414 MAIL ADDRESS: STREET 1: 2 NORTH BROADWAY CITY: LEBANON STATE: OH ZIP: 45036 10-Q 1 lcnb2nd.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2003 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 Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X No The number of shares outstanding of the issuer's common stock, without par value, as of August 4, 2003, was 1,715,327 shares. LCNB Corp. INDEX Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - June 30, 2003, and December 31, 2002 . . . . . . . . . 1 Consolidated Statements of Income - Three and Six Months Ended June 30, 2003 and 2002 . . . 2 Consolidated Statements of Comprehensive Income - Three and Six Months Ended June 30, 2003 and 2002 . . . 3 Consolidated Statements of Shareholders' Equity - Six Months Ended June 30, 2003 and 2002 . . . . . . . . 4 Consolidated Statements of Cash Flows - Six Months Ended June 30, 2003 and 2002 . . . . . . . . 5 Notes to Consolidated Financial Statements . . . . . 6-10 Independent Accountants' Review Report . . . . . . . . 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . 12-23 Item 3. Quantitative and Qualitative Disclosures about Market Risks . . . . . . . . . . . . . . . . . . . . 24 Item 4. Controls and Procedures . . . . . . . . . . . . . . . . . . 24 Part II. Other Information Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . 25 Item 2. Changes in Securities and Use of Proceeds . . . . . . 25 Item 3. Defaults by the Company on its Senior Securities . . . 25 Item 4. Submission of Matters to a Vote of Security Holders. . 25 Item 5. Other Information . . . . . . . . . . . . . . . . . . 25 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . 26 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Part I - Financial Information Item 1. Financial Statements LCNB Corp. and Subsidiaries Consolidated Balance Sheets (thousands)
June 30, December 31, 2003 2002 (unaudited) (a) ASSETS: Cash and due from banks $ 17,228 13,679 Federal funds sold 9,325 11,925 ------- ------- Total cash and cash equivalents 26,553 25,604 ------- ------- Securities available for sale, at market value 151,522 136,178 Federal Reserve Bank stock and Federal Home Loan Bank stock, at cost 2,916 2,871 Loans 320,978 324,832 Less-allowance for loan losses 2,003 2,000 ------- ------- Net loans 318,975 322,832 ------- ------- Premises and equipment, net 11,861 11,688 Intangible assets 3,030 3,121 Other assets 4,499 4,457 ------- ------- TOTAL ASSETS $519,356 506,751 ======= ======= LIABILITIES: Deposits- Noninterest-bearing $ 62,727 58,921 Interest-bearing 389,234 383,299 ------- ------- Total deposits 451,961 442,220 Long-term debt 6,225 6,253 Accrued interest and other liabilities 6,720 6,348 ------- ------- TOTAL LIABILITIES 464,906 454,821 ------- ------- SHAREHOLDERS' EQUITY: Common stock-no par value, authorized 4,000,000 shares; issued and outstanding 1,775,942 shares 10,560 10,560 Surplus 10,553 10,553 Retained earnings 32,267 30,768 Treasury shares, at cost, 59,415 and 54,917 shares at June 30, 2003 and December 31, 2002, respectively (2,433) (2,193) Accumulated other comprehensive income, net of taxes 3,503 2,242 ------- ------- TOTAL SHAREHOLDERS' EQUITY 54,450 51,930 ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $519,356 506,751 ======= =======
(a) Financial information as of December 31, 2002, has been derived from the audited, consolidated financial statements of the Registrant. The accompanying notes to the consolidated financial statements are an integral part of these statements. -1- LCNB Corp. and Subsidiaries Consolidated Statements of Income (In thousands except per share data) (unaudited)
Three Months Ended Six Months Ended June 30, June 30, ------------------ ---------------- 2003 2002 2003 2002 INTEREST INCOME: Interest and fees on loans $5,539 6,198 11,308 12,426 Dividends on Federal Reserve Bank and Federal Home Loan Bank stock 42 44 64 68 Interest on investment securities- Taxable 751 763 1,504 1,415 Non-taxable 530 431 1,063 838 Other short-term investments 52 93 92 188 ----- ----- ------ ------ TOTAL INTEREST INCOME 6,914 7,529 14,031 14,935 ----- ----- ------ ------ INTEREST EXPENSE: Interest on deposits 2,260 2,544 4,511 5,060 Interest on short-term borrowings 1 3 3 7 Interest on long-term borrowings 68 174 139 359 ----- ----- ------ ------ TOTAL INTEREST EXPENSE 2,329 2,721 4,653 5,426 ----- ----- ------ ------ NET INTEREST INCOME 4,585 4,808 9,378 9,509 PROVISION FOR LOAN LOSSES 99 71 217 125 ------ ----- ------ ------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,486 4,737 9,161 9,384 ----- ----- ------ ------ NON-INTEREST INCOME: Trust income 234 230 489 531 Service charges and fees 702 600 1,339 1,179 Net gain on sale of securities - 12 - 21 Insurance agency income 399 273 760 524 Gains from sales of mortgage loans 275 8 502 34 Other operating income 30 31 65 66 ----- ----- ------ ------ TOTAL NON-INTEREST INCOME 1,640 1,154 3,155 2,355 ----- ----- ------ ------ NON-INTEREST EXPENSE: Salaries and wages 1,707 1,624 3,411 3,239 Pension and other employee benefits 412 408 896 885 Equipment expenses 254 159 486 315 Occupancy expense, net 268 265 549 513 State franchise tax 146 131 263 272 Marketing 53 117 160 200 Intangible amortization 152 152 302 301 ATM expense 74 114 143 214 Other non-interest expenses 809 726 1,600 1,480 ----- ----- ------ ------ TOTAL NON-INTEREST EXPENSE 3,875 3,696 7,810 7,419 ----- ----- ------ ------ INCOME BEFORE INCOME TAXES 2,251 2,195 4,506 4,320 PROVISION FOR INCOME TAXES 553 619 1,202 1,218 ----- ----- ------ ------ NET INCOME $1,698 1,576 3,304 3,102 ===== ===== ====== ====== Dividends declared per common share $0.525 0.50 1.05 1.00 Earnings per common share: Basic $ 0.99 0.92 1.92 1.80 Diluted 0.99 0.92 1.92 1.80 Average shares outstanding (000's): Basic 1,719 1,721 1,720 1,727 Diluted 1,719 1,721 1,720 1,727
The accompanying notes to the consolidated financial statements are an integral part of these statements. -2- LCNB Corp. and Subsidiaries Consolidated Statements of Comprehensive Income (In thousands except per share data) (unaudited)
Three Months Ended Six Months Ended June 30, June 30, ------------------ ---------------- 2003 2002 2003 2002 Net income 1,698 1,576 3,304 3,102 Other comprehensive income: Net unrealized gain on available-for-sale securities (net of taxes of $388, $593, $649, and $494 for the respective periods) 754 1,152 1,261 959 Reclassification adjustment for net realized gain on sale of available-for-sale securities included in net income (net of taxes of $4 and $7 for the three and six months ended June 30, 2002 - (8) - (14) ----- ----- ----- ----- Total comprehensive income 2,452 2,720 4,565 4,047 ===== ===== ===== =====
-3- LCNB Corp. and Subsidiaries Consolidated Statements of Shareholders' Equity (thousands) (unaudited)
Accumulated Other Total Common Retained Treasury Comprehensive Shareholders' Shares Surplus Earnings Shares Income Equity Balance January 1,2002 $10,560 10,553 27,714 (516) 1,196 49,507 Net income 3,102 3,102 Change in estimated fair value of securities available-for- sale, net of tax and reclassification adjustment 945 945 Treasury shares purchased (1,677) (1,677) Cash dividends declared - $1.00 per share (1,721) (1,721) ------ ------ ------ ------ ------ ------ Balance June 30, 2002 $10,560 10,553 29,095 (2,193) 2,141 50,156 ====== ====== ====== ====== ====== ====== Balance January 1,2003 $10,560 10,553 30,768 (2,193) 2,242 51,930 Net income 3,304 3,304 Change in estimated fair value of securities available-for- sale, net of tax and reclassification adjustment 1,261 1,261 Treasury shares purchased (240) (240) Cash dividends declared - $1.05 per share (1,805) (1,805) ------ ------ ------ ------ ------ ------ Balance June 30, 2003 $10,560 10,553 32,267 (2,433) 3,503 54,450 ====== ====== ====== ====== ====== ======
The accompanying notes to the consolidated financial statements are an integral part of these statements. -4- LCNB Corp. and Subsidiaries Consolidated Statements of Cash Flows (thousands) (unaudited)
Six Months Ended June 30, ------------------ 2003 2002 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 3,304 3,102 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization, and accretion 1,548 1,303 Provision for loan losses 217 125 Deferred income tax benefit 207 (117) Realized gain on sales of securities available for sale - (21) Origination of mortgage loans for sale (22,115) (2,806) Proceeds from sales of mortgage loans 22,398 2,827 (Increase) decrease in income receivable 169 (85) (Increase) decrease in other assets (758) (188) Increase (decrease) in other liabilities (215) (835) ------ ------ NET CASH PROVIDED BY OPERATING ACTIVITIES 4,755 3,305 ------ ------ CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of securities available for sale - 8,075 Proceeds from maturities of securities available for sale 23,553 9,426 Purchases of securities available for sale (37,639) (32,271) Net decrease (increase) in loans 3,551 (3,429) Purchases of premises and equipment (670) (603) ------ ------ NET CASH USED IN INVESTING ACTIVITIES (11,205) (18,802) ------ ------ CASH FLOWS FROM FINANCING ACTIVITIES: Net change in deposits 9,741 18,615 Net change in short-term borrowings (269) 456 Principal payments on long-term debt (28) (2,026) Cash dividends paid (1,805) (1,721) Purchases of treasury shares (240) (1,677) ------ ------ NET CASH PROVIDED BY FINANCING ACTIVITIES 7,399 13,647 ------ ------ NET CHANGE IN CASH AND CASH EQUIVALENTS 949 (1,850) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 25,604 34,236 ------ ------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $26,553 32,386 ====== ====== SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid $ 4,625 5,691 Income taxes paid 1,195 1,388
The accompanying notes to the consolidated financial statements are an integral part of these statements. -5- LCNB Corp. and Subsidiaries Notes to the Consolidated Financial Statements (Unaudited) NOTE 1 - BASIS OF PRESENTATION Substantially all of the assets, liabilities and operations of LCNB Corp. ("LCNB") are attributable to its wholly owned subsidiaries, Lebanon Citizens National Bank ("Lebanon Citizens") and Dakin Insurance Agency, Inc. ("Dakin"). The accompanying unaudited consolidated financial statements include the accounts of LCNB, Lebanon Citizens, and Dakin. The statements have been prepared in accordance with U.S. 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 U.S. 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 U.S. 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 and six months ended June 30, 2003 are not necessarily indicative of the results to be expected for the full year ending December 31, 2003. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements, accounting policies and financial notes thereto included in LCNB's 2002 Form 10-K filed with the Securities and Exchange Commission. The financial information presented on pages one through ten of this Form 10-Q has been subject to a review by J.D. Cloud & Co., L.L.P., LCNB's independent certified public accountants, as described in their report on page 11. 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. Diluted earnings per share is adjusted for the dilutive effects of stock options. The diluted average number of common shares outstanding has been increased for the assumed exercise of stock options with proceeds used to purchase treasury shares at the average market price for the period. -6- LCNB Corp. and Subsidiaries Notes to the Consolidated Financial Statements (Unaudited) (Continued) NOTE 3 - INVESTMENT SECURITIES Available-for-sale investment securities, recorded at estimated market value, consist of the following (thousands):
June 30, December 31, 2003 2002 -------- ----------- U.S. Treasury notes $ - 1,019 U.S. Agency notes 55,458 47,089 U.S. Agency mortgage-backed securities 21,818 19,052 Municipal securities: Non-taxable 60,875 56,856 Taxable 13,371 12,162 ------- ------- $151,522 136,178 ======= =======
NOTE 4 - LOANS Major classifications of loans at June 30, 2003 and December 31, 2002 are as follows (thousands):
June 30, December 31, 2003 2002 -------- ----------- Commercial and industrial $ 33,778 35,198 Commercial, secured by real estate 93,794 80,882 Residential real estate 139,066 151,502 Consumer, excluding credit card 48,571 51,184 Agricultural 1,584 1,314 Credit card 2,566 2,689 Other loans 62 57 Lease financing 903 1,256 ------- ------- 320,324 324,082 Deferred net origination costs 654 750 ------- ------- 320,978 324,832 Allowance for loan losses (2,003) (2,000) ------- ------- Loans - net $318,975 322,832 ======= =======
-7- LCNB Corp. and Subsidiaries Notes to the Consolidated Financial Statements (Unaudited) (Continued) NOTE 4 - LOANS (continued) Mortgage loans sold to and serviced for the Federal Home Loan Mortgage Corporation ("FHLMC") are not included in the accompanying balance sheets. The unpaid principal balances of those loans at June 30, 2003 and December 31, 2002 were $50,325,000 and $36,592,000, respectively. Loans sold to the FHLMC during the three and six months ended June 30, 2003 totaled $12,390,000 and $22,115,000, respectively, and $534,000 and $2,806,000 during the three and six months ended June 30, 2002, respectively. Mortgage servicing rights on originated mortgage loans that have been sold are capitalized by allocating the total cost of the loans between mortgage servicing rights and the loans based on their relative fair values. Approximately $124,000 and $220,000 in mortgage servicing rights were capitalized during the three and six months ended June 30, 2003, respectively, and are being amortized to loan servicing income in proportion to and over the period of estimated servicing income. Changes in the allowance for loan losses were as follows (thousands):
June 30, June 30, 2003 2002 --------- --------- Balance - beginning of year $2,000 2,000 Provision for loan losses 217 125 Charge-offs (248) (146) Recoveries 34 21 ----- ----- Balance - end of period $2,003 2,000 ===== =====
Charge-offs for the six months ended June 30, 2003 and 2002, consisted of consumer and credit card loans. There were no charge-offs on residential real estate or commercial loans for either period. There was one nonaccrual loan with a balance of $32,000 at June 30, 2003. This loan was secured by a second mortgage on 1-4 family residential property. There were no nonaccrual loans at December 31, 2002. At June 30, 2003 and December 31, 2002, loans past due 90 days or more and still accruing were $439,000 and $232,000, respectively. NOTE 5 - COMMITMENTS AND CONTINGENT LIABILITIES LCNB is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments included commitments to extend credit. They involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheets. Exposure to credit loss in the event of nonperformance by the other parties to financial instruments for commitments to extend credit is represented by the contract amount of those instruments. -8- LCNB Corp. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) (Continued) NOTE 5 - COMMITMENTS AND CONTINGENT LIABILITIES (continued) LCNB uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. Financial instruments whose contract amounts represent off-balance-sheet credit risk at June 30, 2003 and December 31, 2002 were as follows (thousands):
June 30, December 31, 2003 2002 --------- --------- Commitments to extend credit $74,182 69,521 Standby letters of credit 6,677 6,938
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses. Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. At June 30, 2003 and December 31, 2002, outstanding guarantees of $1,787,000 and $2,048,000, respectively, were issued to developers and contractors. These guarantees generally expire within one year and are fully secured. In addition, LCNB has an approximate $5 million participation at June 30, 2003 and December 31, 2002 in a letter of credit securing payment of principal and interest on a bond issue. This letter of credit will expire July 15, 2006, and is secured by an assignment of rents and the underlying real property. LCNB evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management's credit evaluation of the borrower. Collateral held varies, but may include accounts receivable; inventory; property, plant and equipment; residential realty; and income-producing commercial properties. LCNB and its subsidiaries are parties to various claims and proceedings arising in the normal course of business. Management, after consultation with legal counsel, believes that the liabilities, if any, arising from such proceedings and claims will not be material to the consolidated financial position or results of operations. NOTE 6 - STOCK OPTIONS LCNB established an Ownership Incentive Plan (the "Plan") during 2002 that allows for stock-based awards to eligible employees. The awards may be in the form of stock options, share awards, and/or appreciation rights. The Plan provides for the issuance of up to 50,000 shares. No awards were granted during 2002. Stock options for 2,764 shares were granted to key executive officers of LCNB during the first quarter, 2003. -9- LCNB Corp. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) (Continued) NOTE 6 - STOCK OPTIONS (continued) LCNB accounts for the Plan under the recognition and measurement principles of Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted had an exercise price equal to the market value of the underlying common stock on the date of grant. The pro-forma effect on net income and earnings per share if LCNB had applied the fair value recognition provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation was not material. Because this is the first year stock options were outstanding, this year's pro- forma effect is not indicative of the pro-forma effect on future quarters and years. NOTE 7 - ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standards ("SFAS") No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, was issued in April, 2003. It amends and clarifies financial accounting and reporting for derivitive instruments, including certain derivative instruments embedded in other contracts, and for hedging activities accounted for under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. LCNB does not currently hold any security investments of the types covered by this SFAS and is therefore not affected by its provisions. SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, was issued in May, 2003, and establishes new accounting standards for classification and measurement of certain financial instruments with characteristics of both assets and liabilities. Many of the instruments covered by the scope of SFAS No. 150 were previously classified as equity; SFAS No. 150 requires that they be classified as liabilities or, in certain circumstances, as assets. LCNB does not currently hold any security investments with such characteristics and SFAS No. 150 therefore has no effect on LCNB Corp.'s financial statements. -10- INDEPENDENT ACCOUNTANTS' REVIEW REPORT To the Board of Directors and Shareholders LCNB Corp. and subsidiaries Lebanon, Ohio We have reviewed the accompanying consolidated balance sheet of LCNB Corp. and subsidiaries as of June 30, 2003, and the related consolidated statements of income and comprehensive income for each of the three-month and six-month periods ended June 30, 2003 and 2002, and the related consolidated statements of cash flows and shareholders' equity for each of the six-month periods ended June 30, 2003 and 2002. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with U.S. generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated interim financial statements for them to be in conformity with U.S. generally accepted accounting principles. We previously audited, in accordance with U.S. generally accepted auditing standards, the consolidated balance sheet of LCNB Corp. and subsidiaries as of December 31, 2002 (presented herein), and the related consolidated statements of income, shareholders' equity, and cash flows for the year then ended (not presented herein), and in our report dated January 24, 2003, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2002, is fairly stated in all material respects. /s/ J.D. Cloud & Co. L.L.P. Cincinnati, Ohio July 31, 2003 -11- LCNB Corp. and Subsidiaries Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 earned $1,698,000, or $0.99 per share, for the three months ended June 30, 2003 compared to $1,576,000, or $0.92 per share, for the three months ended June 30, 2002. The return on average assets (ROAA) was 1.32% and the return on average equity (ROAE) was 12.69% for the second quarter of 2002, compared with an ROAA of 1.29% and an ROAE of 12.73% for the second quarter of 2002. LCNB earned $3,304,000, or $1.92 per share, during the first six months of 2003 compared to $3,102,000, or $1.80 per share, for the first six months of 2002. The ROAA and ROAE for the first six months of 2002 were 1.30% and 12.53%, respectively. The comparable ratios for the first six months of 2002 were 1.29% and 12.66%, respectively. NET INTEREST INCOME LCNB's primary source of earnings is net interest income, which is the difference between earnings from loans and other investments and interest paid on deposits and other liabilities. The following table presents, for the three and six months ended June 30, 2003 and 2002, average balances for interest-earning assets and interest-bearing liabilities, the income or expense related to each item, and the resultant average yields earned or rates paid. -12-
Three Months Ended Six Months Ended June 30, June 30, ------------------ ---------------- 2003 2002 2003 2002 (Dollars in thousands) Interest-earning Assets: Average balance (1) $486,222 460,138 481,511 454,112 Interest income (2) 7,191 7,760 14,588 15,382 Average rate 5.93% 6.76% 6.11% 6.83% Interest-bearing Liabilities: Average balance 396,807 381,529 393,848 376,205 Interest expense 2,329 2,721 4,653 5,426 Average rate 2.35% 2.86% 2.38% 2.91% Net interest income 4,862 5,039 9,935 9,956 Net interest margin on a taxable equivalent basis (3) 4.01% 4.39% 4.16% 4.42%
(1) Includes nonaccrual loans, if any. (2) Income from tax-exempt securities and loans is included in interest income on a taxable basis. Interest income has been divided by a factor comprised of the complement of the incremental tax rate of 34%. (3) The net interest margin is the taxable-equivalent net interest income divided by average interest-earning assets. THREE MONTHS ENDED JUNE 30, 2003 VS. 2002. The following table presents the changes in taxable-equivalent basis interest income and expense for each major category of interest-earning assets and interest-bearing liabilities and the amount of change attributable to volume and rate changes for the three months ended June 30, 2003 as compared to the comparable period in 2002. Changes not solely attributable to rate or volume have been allocated to volume and rate changes in proportion to the relationship of absolute dollar amounts of the changes in each. -13-
Three Months Ended June 30, 2003 vs 2002 -------------------------- Increase (decrease) due to: Volume Rate Total (In thousands) Interest-earning Assets Loans $(112) (552) (664) Federal funds sold (14) (27) (41) Federal Reserve Bank stock - - - Federal Home Loan Bank stock 1 (3) (2) Investment securities Taxable 208 (220) (12) Nontaxable 213 (63) 150 --- --- --- Total interest income 296 (865) (569) Interest-bearing Liabilities Deposits 136 (420) (284) Short-term borrowings 1 (3) (2) Long-term debt (67) (39) (106) --- --- --- Total interest expense 70 (462) (392) --- --- --- Net interest income $ 226 (403) (177) === === ===
Net interest income on a fully tax equivalent basis for the three months ended June 30, 2003 totaled $4,862,000, a decrease of $177,000 from the comparable period in 2002. Total interest income decreased $569,000 and was partially offset by a decrease in total interest expense of $392,000. The decreases in both interest income and expense were primarily a result of decreases in the average rate earned on loans and investments and the average rate paid for deposits and borrowings. The net interest margin (net interest income divided by average total earning assets) is a measure of the revenue generated by a financial institution's earning assets, after deducting interest expense. The net interest margin for the second quarter of 2003 was 4.01%, as compared to 4.39% for the second quarter, 2002. The net interest margin and net interest income decreased due to rates paid for deposits and other borrowings decreasing less rapidly than rates earned on loans and other investments. -14- The decrease in total interest income was primarily due to an 83 basis point reduction in the average rate earned on earning assets, from 6.76% for the second quarter of 2002 to 5.93% for the second quarter of 2003. This decrease was partially offset by a $26.1 million increase in average total earning assets. Average investment securities increased $35.9 million, partially offset by a $6.0 million decrease in average loans and a $3.9 million decrease in average federal funds sold. Average loans decreased primarily because of payoffs from loan refinances and sales of new fixed-rate residential loans to the Federal Home Loan Mortgage Corporation. Federal funds decreased because funds were invested in higher-yielding investment securities. The decrease in total interest expense was due to a 51 basis point decrease in the average rate paid, slightly offset by a $15.3 million increase in average interest-bearing liabilities. Average interest-bearing deposits increased $20.5 million, while average long-term debt decreased $5.4 million. The deposit increase was primarily in regular savings and NOW account products, which increased $27.7 million on an average basis. IRAs and certificates of deposit decreased $7.2 million on an average basis when comparing the same periods. Management believes this is reflective of customer preference for highly liquid, short-term investment products during the current rate cycle. The decrease in long-term debt is due to the maturation of a $2.0 million Federal Home Loan Bank advance in June, 2002, and the early payoff of two other advances totaling $4.0 million during August, 2002. SIX MONTHS ENDED JUNE 30, 2002 VS. 2001. The following table presents the changes in taxable-equivalent basis interest income and expense for each major category of interest-earning assets and interest-bearing liabilities and the amount of change attributable to volume and rate changes for the six months ended June 30, 2003 as compared to the comparable period in 2002.
Six Months Ended June 30, 2003 vs 2002 -------------------------- Increase (decrease) due to: Volume Rate Total (In thousands) Interest-earning Assets Loans $ (76) (1,048) (1,124) Federal funds sold (49) (47) (96) Federal Home Loan Bank stock 2 (6) (4) Investment securities Taxable 418 (329) 89 Nontaxable 448 (107) 341 --- ----- ----- Total interest income 743 (1,537) (794) Interest-bearing Liabilities Deposits 313 (862) (549) Short-term borrowings (1) (3) (4) Long-term debt (143) (77) (220) ---- ----- ----- Total interest expense 169 (942) (773) ---- ----- ----- Net interest income $ 574 (595) (21) ==== ===== =====
-15- Net interest income on a fully tax-equivalent basis for the first half of 2003 totaled $9,935,000, a decrease of $21,000 from the first half of 2002. Total interest income decreased $794,000 and was partially offset by a decrease in total interest expense of $773,000. The decrease in total interest income was primarily due to a 72 basis point decrease in the average rate earned on earning assets, from 6.83% for the first half of 2002 to 6.11% for the first half of 2003. This decrease was partially offset by a $27.4 million increase in average total earning assets. Average investment securities increased $36.6 million, partially offset by a $2.0 million decrease in average loans and a $7.3 million decrease in average federal funds sold. Average loans and average federal funds sold decreased for the same reasons discussed previously in the "THREE MONTHS ENDED JUNE 30, 2003 VS. 2002" section. The decrease in total interest expense was due to a 53 basis point decrease in the average rate paid, slightly offset by a $17.6 million increase in average interest-bearing liabilities. Average interest-bearing deposits increased $23.6 million and average long-term debt decreased $5.7 million for substantially the same reasons discussed in the previous section. 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, 2003 2002 2003 2002 (In thousands) Balance, beginning of period $2,000 2,000 2,000 2,000 ----- ----- ----- ----- Charge-offs 110 78 248 146 Recoveries 14 7 34 21 ----- ----- ----- ----- Net charge-offs 96 71 214 125 ----- ----- ----- ----- Provision for loan losses 99 71 217 125 ----- ----- ----- ----- Balance, end of period $2,003 2,000 2,003 2,000 ===== ===== ===== =====
Charge-offs for the first half of 2003 and 2002 are attributable to consumer loans, including $14,000 and $23,000 in credit card charge-offs for the six months ended June 30, 2003 and 2002, respectively. -16- 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, 2003 2002 -------- ----------- (In thousands) Loan accounted for on non-accrual basis $ 32 - Accruing loans which are past due 90 days or more 439 232 Renegotiated loans - - --- --- Total $471 232 === ===
The non-accrual loan at June 30, 2003, was secured by a second mortgage on 1- 4 family residential property. Approximately $108,000 of the increase in accruing loans which are past due 90 days or more consists of a loan secured by agricultural land. Installment loans and loans secured by second mortgages on 1-4 family residential properties comprise the remaining balance of the increase. NON-INTEREST INCOME THREE MONTHS ENDED JUNE 30, 2003 VS. 2002. Total non-interest income for the second quarter of 2003 was $486,000 or 42.1% greater than for the second quarter of 2002 primarily due to increased activity in the real estate mortgage loan secondary market, increased commissions received by Dakin Insurance Agency, and increased service charges and fees on deposit accounts. Gains from sales of mortgage loans increased $267,000 due to an increase in the volume of loans sold during the second quarter, 2003 as compared to the second quarter, 2002. Insurance agency income increased $126,000 or 46.2% due to commissions received on new and renewing policies. Service charges and fees increased $102,000 or 17.0% primarily due to adjustments in rates charged on non-sufficient funds and to an increase in the number of non- sufficient fund charges. SIX MONTHS ENDED JUNE 30, 2003 VS. 2002. Total non-interest income for the first six months of 2003 was $800,000 or 34.0% more than for the comparable period in 2002 due to a $468,000 increase in gains from sales of mortgage loans, a $236,000 or 45.0% increase in insurance agency commissions, and a $160,000 or 13.6% increase in service charges and fees. Gains from sales of mortgage loans and service charges and fees increased for substantially the same reason mentioned above. In addition to commissions received on new and renewing policies, the increase in insurance agency income for the six month period includes a $55,000 increase in contingency commissions recognized during the first quarter. Contingency commissions are profit sharing arrangements on property and casualty policies between the originating agency and the underwriter and are generally based on underwriting results and written premium. As such, the amount received each year can vary significantly depending on loss experience. -17- NON-INTEREST EXPENSE THREE MONTHS ENDED JUNE 30, 2003 VS. 2002. Total non-interest expense increased $179,000 or 4.8% during the second quarter, 2003 compared with the second quarter, 2002 primarily due to increases in salaries and wages, equipment expenses, and other non-interest expenses. Partially offsetting these increases were decreases in marketing and ATM expenses. Salaries and wages increased $83,000 or 5.1% primarily due to routine salary and wage increases. Equipment expenses increased $95,000 or 59.7% primarily due to rental costs for a new phone system installed during 2002 and to depreciation charges on new furniture, computer hardware, and computer software purchased during the second half of 2002 and the first half of 2003. Other non- interest expenses increased $83,000 or 11.4% due primarily to legal and other professional expenses. ATM expense decreased $40,000 or 35.1% primarily due to a change in the ATM transaction processor. SIX MONTHS ENDED JUNE 30, 2003 VS. 2002. Total non-interest expense increased $391,000 or 5.3% during the first half, 2003 compared with the first half of 2002 primarily due to a $172,000 or 5.3% increase in salaries and wages, a $171,000 or 54.3% increase in equipment expenses, and a $120,000 or 8.1% increase in other non-interest expenses. These increases were partially offset by a $40,000 or 20.0% decrease in marketing expenses and a $71,000 or 33.2% decrease in ATM expense. All increases and decreases were for substantially the same reasons described in the second quarter comparison above. -18- 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 QUARTERLY AVERAGE BALANCE SHEETS ------------------------------------------ June 30, March 31, December 31, 2003 2003 2002 (In thousands) ASSETS Interest-earning: Federal funds sold $ 18,415 14,246 21,877 Investment securities 147,450 137,834 130,460 Loans 320,357 324,666 328,505 ------- ------- ------- Total interest-earning assets 486,222 476,746 480,842 Noninterest-earning: Cash and due from banks 13,441 14,065 13,992 All other assets 19,233 19,058 19,163 Allowance for credit losses (2,004) (2,005) (2,001) ------- ------- ------- Total assets $516,892 507,864 511,996 ======= ======= ======= LIABILITIES Interest-bearing: Interest-bearing deposits $389,951 383,986 389,117 Short-term borrowings 623 624 1,089 Long-term debt 6,233 6,246 6,260 ------- ------- ------- Total interest-bearing liabilities 396,807 390,856 396,466 Noninterest-bearing: Noninterest-bearing deposits 63,004 61,194 60,457 All other liabilities 3,397 3,141 3,443 ------- ------- ------- Total liabilities 463,208 455,191 460,366 SHAREHOLDERS' EQUITY 53,684 52,673 51,630 ------- ------- ------- Total liabilities and shareholders' equity $516,892 507,864 511,996 ======= ======= =======
-19- Average total interest-earning assets increased approximately $9.5 million or 2.0% during the second quarter, 2003 compared to the first quarter, 2003. The growth was in investment securities, which increased $9.6 million or 7.0% on an average basis, and in federal funds sold, which increased $4.2 million or 29.3% on an average basis. Average loans partially offset these increases with a decrease of $4.3 million or 1.3%. The decrease in average loans was primarily due to the real estate loan portfolio, which decreased $9.0 million on an average basis. The decrease was due to payoffs on loans refinanced combined with an historically high volume of loans originated and sold. Partially offsetting the real estate loan decrease was a $4.8 million increase in average commercial loans. With limited opportunities to invest deposit growth in the loan portfolio, management purchased additional investment securities available for sale, which can readily be sold if the funds should be needed for future loan growth. Total average interest-bearing liabilities for the second quarter, 2003, were $6.0 million or 1.5% greater than for the first quarter, 2003. The growth was in interest-bearing deposits, which increased $6.0 million on an average basis - highly liquid savings and NOW account products increased $9.5 million on an average basis and certificates of deposit and IRA accounts decreased by $3.5 million on an average basis. Management believes the growth in the liquid products reflects investor preference for short-term, highly liquid investments during the current economic cycle. This means much of the recent savings deposit growth could be quickly withdrawn if interest rates increase. Management is attempting to lock in a portion of these funds by offering special rates and terms on selected certificate of deposit products. -20- CAPITAL Lebanon Citizens and LCNB are 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 1 capital (essentially shareholders' equity less goodwill and other intangibles) and Tier 2 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 LCNB's 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 1 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%. For various regulatory purposes, financial institutions are classified into categories based upon capital adequacy. The highest "well-capitalized" category requires capital ratios of at least 10% for total risk-based, 6% for Tier 1 risk-based, and 5% for leverage. As of the most recent notification from their regulators, Lebanon Citizens and LCNB were categorized as "well-capitalized" under the regulatory framework for prompt corrective action. Management believes that no conditions or events have occurred since the last notification that would change the Lebanon Citizens' or LCNB's category. A summary of the regulatory capital and capital ratios of LCNB follows:
At At June 30, December 31, 2003 2002 (Dollars in thousands) Regulatory Capital: Shareholders' equity $54,450 51,930 Goodwill and other intangibles (2,839) (3,121) Net unrealized securities gains (3,503) (2,242) ------ ------ Tier 1 risk-based capital 48,108 46,567 Eligible allowance for loan losses 2,003 2,000 ------ ------ Total risk-based capital $50,111 48,567 ======= ====== Capital Ratios: Total risk-based 15.42% 15.36% Tier 1 risk-based 14.80% 14.73% Leverage 9.43% 9.21% Minimum Required Capital Ratios: Total risk-based 8.00% 8.00% Tier 1 risk-based 4.00% 4.00% Tier 1 leverage 3.00% 3.00%
-21- On April 17, 2001, LCNB's Board of Directors authorized three separate stock repurchase programs, two phases of which continue. The shares purchased will be held for future corporate purposes. Under the "Market Repurchase Program" LCNB will purchase up to 50,000 shares of its stock through market transactions with a selected stockbroker. Through June 30, 2003, 12,063 shares had been purchased under this program. The "Private Sale Repurchase Program" is available to shareholders who wish to sell large blocks of stock at one time. Because LCNB's stock is not widely traded, a shareholder releasing large blocks may not be able to readily sell all shares through normal procedures. Purchases of blocks will be considered on a case-by-case basis and will be made at prevailing market prices. A total of 46,897 shares had been purchased under this program at June 30, 2003. LIQUIDITY LCNB depends on dividends from its subsidiaries for the majority of its liquid assets, including the cash needed to pay dividends to its shareholders. National banking law limits the amount of dividends Lebanon Citizens may pay to the sum of retained net income, as defined, for the current year plus retained net income for the previous two years. Prior approval from the Office of the Comptroller of the Currency, Lebanon Citizens' primary regulator, would be necessary for Lebanon Citizens to pay dividends in excess of this amount. In addition, dividend payments may not reduce capital levels below minimum regulatory guidelines. Management believes Lebanon Citizens will be able to pay anticipated dividends to LCNB without needing to request approval. Liquidity is the ability to have funds available at all times to meet the commitments of LCNB. Asset liquidity is provided by cash and assets which are readily marketable or pledgeable or which will mature in the near future. Liquid assets include cash, federal funds sold and securities available for sale. At June 30, 2003, LCNB liquid assets amounted to $178.1 million or 34.3% of total gross assets, an increase from $161.8 million or 31.9% at December 31, 2002. Liquidity is also provided by access to core funding sources, primarily core depositors in the bank's trade area. Approximately 90.7% of total deposits at June 30, 2003 were "core" deposits. Core deposits, for this purpose, are defined as total deposits less public funds and certificates of deposit greater than $100,000. Secondary sources of liquidity include LCNB's ability to sell loan participations, borrow funds from the Federal Home Loan Bank, 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. LCNB experienced no liquidity or operational problems as a result of the current liquidity levels. -22- RECENT ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standards ("SFAS") No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, was issued in April, 2003. It amends and clarifies financial accounting and reporting for derivitive instruments, including certain derivative instruments embedded in other contracts, and for hedging activities accounted for under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. LCNB does not currently hold any security investments of the types covered by this SFAS and is therefore not affected by its provisions. SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, was issued in May, 2003, and establishes new accounting standards for classification and measurement of certain financial instruments with characteristics of both assets and liabilities. Many of the instruments covered by the scope of SFAS No. 150 were previously classified as equity; SFAS No. 150 requires that they be classified as liabilities or, in certain circumstances, as assets. LCNB does not currently hold any security investments with such characteristics and SFAS No. 150 therefore has no effect on LCNB Corp.'s financial statements. -23- Item 3. Quantitative and Qualitative Disclosures about Market Risks For a discussion of LCNB's asset and liability management policies and gap analysis for the year ended December 31, 2000 see Item 7A, Quantitative and Qualitative Disclosures about Market Risks, in the recently filed Form 10-K for the year ended December 31, 2001. There have been no material changes in LCNB's market risks, which for LCNB is primarily interest rate risk. Item 4. Controls and Procedures a) Disclosure controls and procedures. The Chief Executive Officer and the Chief Financial Officer have carried out an evaluation of the effectiveness of LCNB's disclosure controls and procedures that ensure that information relating to LCNB required to be disclosed by LCNB in the reports that it files or submits under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Based upon this evaluation, these officers have concluded, that as of June 30, 2003, LCNB's disclosure controls and procedures were adequate. b) Changes in internal control over financial reporting. During the period covered by this report, there were no changes in LCNB's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, LCNB's internal control over financial reporting. -24- PART II. OTHER INFORMATION LCNB Corp. and Subsidiaries Item 1. Legal Proceedings - Not Applicable Item 2. Changes in Securities and Use of Proceeds - Not Applicable Item 3. Defaults Upon Senior Securities - Not Applicable Item 4. Submission of Matters to a Vote of Security Holders - The Annual Meeting of the shareholders of LCNB Corp. was held on April 15, 2003. One item was voted on by the shareholders of LCNB: Election of three Class I directors to serve until the 2006 Annual Meeting. The following members of the Board of Directors of LCNB Corp. were elected as Class I directors by the votes indicated:
Director For Against Withheld -------- ------------- ------- -------- David S. Beckett 1,456,168.8476 - 24,470 Robert C. Cropper 1,480,038.8476 - 600 Stephen P. Wilson 1,461,718.8476 - 18,920
The following Class II and III members of the Board of Directors have terms expiring in 2004 and 2005, respectively: Class II: Corwin M. Nixon, Kathleen Porter Stolle, and Marvin E. Young Class III: William H. Kaufman, George L. Leasure, James B. Miller, Howard E. Wilson Item 5. Other Information - Not Applicable -25- Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit No. Title 11 Computation of consolidated earnings per common share. 15 Letter regarding unaudited interim financial information. 31.1 Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002. 32 Certification of Chief Executive Officer and Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002. 16 Reports on Form 8-K LCNB filed a report on Form 8-K on April 15, 2003 to announce earnings for the three months ended March 31, 2003. -26- 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 /s/ Stephen P. Wilson /s/Steve P. Foster - ------------------------- ------------------------- Stephen P. Wilson Steve P. Foster President, CEO & Chairman Executive Vice President of the Board of Directors and Chief Financial Officer August 5, 2003 August 5, 2003 -27- Exhibit 11 LCNB Corp. Computation of Consolidated Earnings Per Common Share For the Three and Six Months Ended June 30, 2003 and 2002 (in thousands, except shares and per share data)
For the Three Months For the Six Months Ended June 30, Ended June 30, 2003 2002 2003 2002 Net income (loss) $ 1,698 $ 1,567 $ 3,304 $ 3,102 ========= ========= ========= ========= Weighted average number of shares outstanding used in the calculation of basic earnings per common share 1,718,504 1,721,025 1,719,581 1,726,553 Add - Dilutive effect of stock options (1) 75 - 26 - --------- --------- --------- --------- Adjusted weighted average number of shares outstanding used in the calculation of diluted earnings per common share 1,718,579 1,721,025 1,719,607 1,726,553 ========= ========= ========= ========= Basic earnings per common share $0.99 $0.92 $1.92 $1.80 Diluted earnings per common share 0.99 0.92 1.92 1.80
(1) Stock options were not outstanding during the three and six months ended June 30, 2002. -28- Exhibit 15 July 31, 2003 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Commissioners: We are aware that our report dated July 31, 2003 on our review of interim financial information of LCNB Corp. and Subsidiaries (the "Company"), issued pursuant to the provisions of Statement on Auditing Standards No. 100, as of and for the three-month and six-month periods ended June 30, 2003 and 2002 and included in the Company's quarterly report on Form 10-Q for the quarter then ended, is incorporated by reference in the Registration Statement of the Company on Form S-8, filed on March 13, 2003. We are also aware of our responsibilities under the Securities Act of 1933. Very truly yours, /s/ J.D. Cloud & Co. L.L.P. - ---------------------------- J.D. Cloud & Co. L.L.P. Cincinnati, Ohio -29- Exhibit 31.1 CERTIFICATIONS In connection with the Quarterly Report of LCNB Corp. on Form 10-Q for the period ending June 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Stephen P. Wilson, President and Chief Executive Officer of LCNB Corp., certify, that: (1) I have reviewed this quarterly report on Form 10-Q of LCNB Corp.; (2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; (3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report; (4) The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. (5) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ Stephen P. Wilson - ------------------------------------- Stephen P. Wilson President and Chief Executive Officer August 5, 2003 -30- Exhibit 31.2 CERTIFICATIONS In connection with the Quarterly Report of LCNB Corp. on Form 10-Q for the period ending June 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Steve P. Foster, Executive Vice President and Chief Financial Officer of LCNB Corp., certify, that: (1) I have reviewed this quarterly report on Form 10-Q of LCNB Corp.; (2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; (3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report; (4) The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. (5) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ Steve P. Foster - ---------------------------- Steve P. Foster Executive Vice President and Chief Financial Officer August 5, 2003 -31- Exhibit 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of LCNB Corp. (the "Company") on Form 10-Q for the period ending June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), we, Stephen P. Wilson, Chief Executive Officer, and Steve P. Foster, Chief Financial Officer, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that to the best of our knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Stephen P. Wilson /s/ Steve P. Foster - ----------------------- ----------------------- Stephen P. Wilson Steve P. Foster Chief Executive Officer Chief Financial Officer Date: August 5, 2003 -32- -----END PRIVACY-ENHANCED MESSAGE-----