-----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, WPE0zMRaOKffT4XipCpKL9IxXA+zgRfKbb7cfdTNWf29hFL7LijvR9YT35sMXntx Covs1F5d5jejkfCa9EbubA== /in/edgar/work/20000728/0001012364-00-000037/0001012364-00-000037.txt : 20000921 0001012364-00-000037.hdr.sgml : 20000921 ACCESSION NUMBER: 0001012364-00-000037 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000728 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LCNB CORP CENTRAL INDEX KEY: 0001074902 STANDARD INDUSTRIAL CLASSIFICATION: [6021 ] IRS NUMBER: 311626393 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26121 FILM NUMBER: 680869 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 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter ended June 30, 2000 Commission file number 000-26121 LCNB Corp. ----------------------------------------------------- (Exact name of registrant as specified in its charter) OHIO 31-1626393 - ------------------------------- ------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) Number) 2 North Broadway, Lebanon, Ohio 45036 ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (513) 932-1414 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No The number of shares outstanding of the issuer's common stock, without par value, as of July 28, 2000, was 1,775,942 shares. LCNB Corp. INDEX Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - June 30, 2000, and December 31, 1999 . . . . . . . . . 1 Consolidated Statements of Income - Three and Six Months Ended June 30, 2000 and 1999 . . 2 Consolidated Statements of Comprehensive Income and Changes in Shareholders' Equity - Year Ended December 31, 1999 and Six Months Ended June 30, 2000 . . . . . . . . . . . . . . . . . 3 Consolidated Statements of Cash Flows - Six Months Ended June 30, 2000 and 1999 . . . . . . . 4 Notes to Consolidated Financial Statements . . . . . . 5-6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . 7-13 Item 3. Quantitative and Qualitative Disclosures about Market Risks . . . . . . . . . . . . . . . . . . . . .13 Part II. Other Information Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . 14 Item 2. Changes in Securities and Use of Proceeds . . . . . . 14 Item 3. Defaults by the Company on its Senior Securities . . . 14 Item 4. Submission of Matters to a Vote of Security Holders . 14 Item 5. Other Information . . . . . . . . . . . . . . . . . . 14 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . 14 Part I - Financial Information Item 1. Financial Statements LCNB Corp. and Subsidiaries Consolidated Balance Sheets At June 30, 2000, and December 31, 1999 (thousands)
June 30, December 31, 2000 1999 (unaudited) (a) ASSETS: Cash and due from banks $ 18,178 18,840 Federal funds sold 1,200 5,300 ------- ------- Total cash and cash equivalents 19,378 24,140 Interest-bearing deposits in banks 5,492 5,492 Federal Reserve Bank stock 647 647 Federal Home Loan Bank stock 427 - Securities available for sale, at market value 94,312 104,911 Loans 313,695 287,608 Less-allowance for loan losses 2,000 2,000 ------- ------- Net loans 311,695 285,608 Premises and equipment, net 10,017 8,231 Intangible assets 4,453 4,763 Accrued income receivable 3,295 3,363 Other assets 2,223 2,083 ------- ------- TOTAL ASSETS $451,939 439,238 ======= ======= LIABILITIES: Deposits- Noninterest-bearing $ 53,930 49,477 Interest-bearing 342,886 342,092 ------- ------- Total deposits 396,816 391,569 Accrued interest and other liabilities 10,963 4,982 ------- ------- TOTAL LIABILITIES 407,779 396,551 ------- ------- 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 24,284 22,872 Accumulated other comprehensive loss, net of taxes (1,237) (1,298) ------- ------- TOTAL SHAREHOLDERS' EQUITY 44,160 42,687 ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $451,939 439,238 ======= ======= (a) Financial information as of December 31, 1999, has been derived from the audited, consolidated financial statements of the Registrant. The accompanying notes to 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 ------------------ ---------------- 2000 1999 2000 1999 INTEREST INCOME: Interest and fees on loans $6,402 5,571 12,581 11,058 Interest on federal funds sold 32 103 102 211 Interest on deposits in banks 74 70 144 139 Interest on Federal Reserve stock 19 19 19 19 Interest on investment securities- Taxable 898 1,260 1,919 2,540 Non-taxable 420 312 815 622 ----- ----- ------ ------ TOTAL INTEREST INCOME 7,845 7,335 15,580 14,589 ----- ----- ------ ------ INTEREST EXPENSE: Interest on deposits 3,723 3,223 7,358 6,457 Interest on borrowings 84 19 108 31 ----- ----- ------ ------ TOTAL INTEREST EXPENSE 3,807 3,242 7,466 6,488 ----- ----- ------ ------ NET INTEREST INCOME 4,038 4,093 8,114 8,101 PROVISION FOR LOAN LOSSES 48 78 83 124 ------ ----- ------ ------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 3,990 4,015 8,031 7,977 ----- ----- ------ ------ NON-INTEREST INCOME: Trust income 285 239 560 454 Service charges and fees 523 524 1,020 1,026 Net gain (loss) on sale of securities 1 23 (13) 23 Insurance agency commissions 235 218 415 579 Other operating income 32 29 62 60 ----- ----- ------ ------ TOTAL NON-INTEREST INCOME 1,076 1,033 2,044 2,142 ----- ----- ------ ------ NON-INTEREST EXPENSE: Salaries and wages 1,425 1,294 2,837 2,788 Pension and other employee benefits 337 301 741 678 Equipment 131 126 262 253 Occupancy, net 274 231 532 492 State franchise tax 117 155 242 308 Marketing 77 86 185 194 Intangible amortization 162 154 325 307 Other 746 709 1,529 1,429 ----- ----- ------ ------ TOTAL NON-INTEREST EXPENSE 3,269 3,056 6,653 6,449 ----- ----- ------ ------ INCOME BEFORE INCOME TAXES 1,797 1,992 3,422 3,670 PROVISION FOR INCOME TAXES 505 530 945 1,035 ----- ----- ------ ------ NET INCOME $1,292 1,462 2,477 2,635 ===== ===== ====== ====== Dividends declared per common share $ .30 .25 .60 .50 Basic earnings per common share $ 0.73 0.82 1.39 1.48 Average shares outstanding (000's) 1,776 1,776 1,776 1,776 The accompanying notes to financial statements are an integral part of these statements.
-2- LCNB Corp. and Subsidiaries 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, 1999 $10,560 10,553 20,114 646 41,873 Comprehensive Income: Net income 5,574 5,574 $5,574 Net unrealized loss on available-for-sale securities (net of taxes of $995) (1,931) (1,931) (1,931) Reclassification adjustment for net realized gain on sale of available-for-sale securities included in net income (net of taxes of $7) (13) (13) (13) ----- Total comprehensive income $3,630 ===== Cash dividends declared (2,816) (2,816) ------ ------ ------ ------ ------ Balance December 31, 1999 $10,560 10,553 22,872 (1,298) 42,687 Comprehensive Income: Net income 2,477 2,477 $2,477 Net unrealized gain on available-for-sale securities (net of taxes of $26) 52 52 52 Reclassification adjustment for net realized loss on sale of available-for-sale securities included in net income (net of tax benefit of $4) 9 9 9 ----- Total comprehensive income $2,538 ===== Cash dividends declared (1,065) (1,065) ------ ------ ------ ------ ------ Balance June 30, 2000 $10,560 10,553 24,284 (1,237) 44,160 ====== ====== ====== ====== ====== The accompanying notes to financial statements are an integral part of these statements.
-3- LCNB Corp. and Subsidiaries Consolidated Statements of Cash Flows (thousands) (unaudited)
Six Months Ended June 30 ------------------ 2000 1999 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 2,477 2,635 Adjustments for non-cash items - Depreciation and amortization 981 809 Provision for loan losses 83 124 Deferred tax benefit (98) (25) Realized (gain) loss on sales of securities 13 (23) Origination of mortgage loans for sale - (2,324) Proceeds from sales of mortgage loans - 2,324 (Increase) decrease in accrued income receivable 68 (283) Increase (decrease) in accrued interest and other accrued expenses, net (300) 175 ------ ------ NET CASH PROVIDED BY OPERATING ACTIVITIES 3,224 3,412 ------ ------ CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities of securities available for sale 12,030 26,101 Proceeds from sales of securities available for sale 3,988 8,674 Purchases of securities available for sale (5,517) (28,581) Purchases of securities held to maturity (427) - Net (increase) in loans (26,393) (6,681) Purchases of premises and equipment (2,131) (565) ------ ------ NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (18,450) (1,052) ------ ------ CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in deposits 5,247 (6,481) Net increase in short-term borrowings 6,282 - Cash dividends paid (1,065) (880) ------ ------ NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 10,464 (7,361) ------ ------ NET CHANGE IN CASH AND CASH EQUIVALENTS (4,762) (5,001) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 24,140 20,785 ------ ------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $19,378 15,784 ====== ====== SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid $ 7,452 6,613 Income taxes paid 1,014 1,345 NON CASH ADJUSTMENTS: Common shares purchased in exchange for a note payable $ - 448 The accompanying notes to financial statements are an integral part of these statements.
-4- LCNB Corp. and Subsidiaries 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. On April 11, 2000, LCNB Corp., the new consolidated holding company, elected to become a financial holding company pursuant to the Gramm-Leach-Bliley Act ("GLB Act"). The GLB Act, which became effective March 12, 2000, permits bank holding companies and national banks to own many types of non-banking subsidiaries such as insurance agencies and securities brokerage firms. The GLB Act allows a bank holding company to become a financial holding company and to make non-bank acquisitions. Substantially all of the assets, liabilities and operations of LCNB Corp. are attributable to its wholly-owned subsidiaries, Lebanon Citizens and its recently acquired Dakin Insurance Agency, Inc. (see Note 3). The accompanying unaudited consolidated financial statements include the accounts of LCNB Corp., Lebanon Citizens and Dakin Insurance Agency, Inc. ("Dakin"). The financial information prior to the reorganization consists of Lebanon Citizens and Dakin. The statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the unaudited consolidated financial statements include all adjustments (consisting of normal, recurring accruals) considered necessary for a fair presentation of financial position, results of operations and cash flows for the interim periods. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Results of operations for the three months and six months ended June 30, 2000 are not necessarily indicative of the results to be expected for the full year ending December 31, 2000. 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 1999 Form 10-K 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. -5- LCNB Corp. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) (Continued) NOTE 3 - ACQUISITION On April 11, 2000, Dakin was acquired and became a wholly-owned subsidiary of LCNB Corp. Under the terms of the agreement, Dakin shareholders received 15,942 shares of LCNB Corp. common stock in a private offering. The transaction qualifies as a tax-free reorganization and has been accounted for using the pooling method of accounting. Accordingly, the consolidated financial statements of LCNB Corp. have been restated to retroactively combine the financial statements of LCNB Corp. and Dakin as if the acquisition had occurred at the beginning of the earliest period presented. The following table presents the revenues of Dakin included as a component of non-interest income, the net income of Dakin, and reconciles the net income and earnings per common share previously reported by LCNB Corp. to those items presented in the accompanying financial statements (thousands, except earnings per common share):
Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 Dakin Insurance Agency, Inc. Revenues prior to acquisition $ - 221 182 584 Revenues since acquisition 238 - 238 - ----- ----- ----- ----- $ 238 221 420 584 ===== ===== ===== ===== Net income: Consolidated LCNB Corp. $1,256 1,389 2,450 2,562 Dakin Insurance Agency, Inc. 36 73 27 73 ----- ----- ----- ----- $1,292 1,462 2,477 2,635 ===== ===== ===== ===== Earnings per common share: As previously reported $ - 0.79 - 1.46 As restated - 0.82 - 1.48
-6- LCNB Corp. and Subsidiaries Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations COMPARATIVE FINANCIAL INFORMATION Effective May 18, 1999, Lebanon Citizens National Bank was reorganized into a one-bank holding company structure. On April 11, 2000, LCNB Corp, the new consolidated holding company, pursuant to the Gramm-Leach-Bliley Act, elected to become a financial holding company. Additionally, effective April 11, 2000, LCNB Corp. acquired Dakin. The transaction has been accounted for using the pooling method of accounting. Accordingly, the financial information included herein has been restated to retroactively combine the financial statements of LCNB Corp. and Dakin as if the acquisition had occurred at the beginning of the earliest period. Prior to May 18, 1999, the financial information presented represents the assets, liabilities and operations of Lebanon Citizens and Dakin. Comparative earnings per share information is presented on a pro forma basis. FORWARD-LOOKING STATEMENTS Certain matters disclosed herein may be deemed to be forward-looking statements that involve risks and uncertainties, including regulatory policy changes, interest rate fluctuations, loan demand, loan delinquencies and losses, and other risks. Actual strategies and results in future time periods may differ materially from those currently expected. Such forward-looking statements represent management's judgment as of the current date. The Company disclaims, however, any intent or obligation to update such forward- looking statements. RESULTS OF OPERATIONS LCNB Corp. earned $1.292 million for the three months ended June 30, 2000 compared to $1.462 million for the three months ended June 30, 1999. Earnings per share were $.73 for the second quarter of 2000, compared with $.82 per share earned in the second quarter of 1999. Annualized performance ratios included a return on average assets of 1.19% and a return on average equity of 11.94%, compared with the same ratios for the second quarter of 1999 of 1.36% and 13.68%, respectively. For the first six months of 2000 LCNB Corp. earned $2.477 million compared to $2.635 million for the first six months of 1999. Earnings per share were $1.39 in 2000, representing a 6% decline from the $1.48 per share earned the same period in 1999. Return on average assets was 1.14% for the first six months of 2000 and return on average equity was 11.52% for the same period. The comparable ratios for the first six months of 1999 were 1.24% and 12.43%, respectively. NET INTEREST INCOME The table below presents net interest income, average balances and average rates.
Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 NET INTEREST INCOME (in thousands) Book basis $4,038 4,093 8,114 8,101 Tax equivalent adjustment 143 131 277 260 ------ ----- ----- ----- Fully taxable basis $4,181 4,224 8,391 8,361 ===== ===== ===== =====
-7-
Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 AVERAGE BALANCES (in thousands) Interest-earning assets $408,810 400,118 406,504 398,274 Interest-bearing liabilities 343,362 337,233 340,597 335,794 ------- ------- ------- ------- Earning assets financed by noninterest-bearing funds $ 65,448 62,885 65,907 62,480 ======= ======= ======= ======= AVERAGE RATES (fully taxable basis) Yield on interest-earning assets 7.86% 7.48% 7.84% 7.52% Cost of interest-bearing liabilities 4.46 3.86 4.40 3.90 ---- ---- ---- ---- Interest rate spread 3.40 3.62 3.44 3.62 Contribution of noninterest-bearing funds .71 .61 .71 .61 ---- ---- ---- ---- Net interest margin 4.11% 4.23% 4.15% 4.23% ==== ==== ==== ====
Net interest income on a fully taxable basis for the second quarter of 2000 totaled $4.181 million, down $43 thousand from the second quarter of 1999. The $43 thousand decrease in net interest income was primarily due to a 12 basis point decrease in the net interest margin, partially offset by a $8.7 million increase in average earning assets. Net interest income for the first six months of 2000 totaled $8.391 million; up $30 thousand from the first six months of 1999. The $30 thousand increase was primarily due to an $8.2 million increase in average earning assets partially offset by an 8 basis point decrease in the net interest margin. The net interest margin decreased from 4.23% in the second quarter of 1999 to 4.11% in the second quarter of 2000. This 12 basis point decrease was due in part to a 60 basis point increase in the cost of average interest-bearing liabilities, partially offset by a 38 basis point increase in the yield on average interest-earning assets. The increase in the cost of average interest-bearing funds resulted from a general increase in market interest rates. The increase in the yield on average interest-earning assets is due to higher yielding assets, primarily commercial, installment and real estate loans. The net interest margin decreased from 4.23% in the first six months of 1999 to 4.15% in the first six months of 2000. This 8 basis point decrease resulted from a 50 basis point increase in the cost of interest-bearing liabilities partially offset by a 32 basis point increase 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 $408.8 million for the second quarter of 2000, up $8.7 million, or 2.2%, from the same period in 1999. The increase was primarily attributable to increases in commercial, real estate and installment loan portfolios. Average earning assets for the six-month period ended June 30, 2000 increased by $8.2 million when compared with the comparable period of 1999, primarily due to loan growth. Average interest-bearing liabilities totaled $343.4 million for the second quarter of 2000, up $6.1 million from the same period in 1999. Average interest- bearing liabilities totaled $340.6 million for the six months ended June 30, 2000, an increase of $4.8 million from the six month period ended June 30, 1999. -8- 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, 2000 1999 2000 1999 (thousands) (thousands) Balance, beginning of period $2,000 2,000 2,000 2,000 ----- ----- ----- ----- Charge-offs 59 88 107 140 Recoveries 11 10 24 16 ----- ----- ----- ----- Net charge-offs 48 78 83 124 ----- ----- ----- ----- Provision for loan losses 48 78 83 124 ----- ----- ----- ----- Balance, end of period $2,000 2,000 2,000 2,000 ====== ====== ====== ======
Of the total charge-offs so far in 2000, all $107,000 is attributable to consumer loans including $19,000 in credit cards. For the first six months of 1999, consumer loans charged off amounted to $126,000. 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 2000 1999 -------- ----------- (thousands) Loan accounted for on non-accrual basis $271 - Accruing loans which are past due 90 days or more 174 68 Renegotiated loans - - --- -- Total $445 68 === ==
-9- The loan accounted for on a non-accrual basis consists of one commercial loan, which has financially strong guarantors supporting the credit. It is anticipated the borrowers will pay the loan off in the third quarter of 2000. The remaining accruing loans past due 90 days or more consist of commercial, real estate, and consumer credits. NON-INTEREST INCOME Non-interest income of $1,076 million increased $43 thousand, or 4.1% in the second quarter of 2000 compared to the second quarter of 1999. Trust income of $285 thousand increased $46 thousand, or 19%, from the second quarter of 1999 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. Total service charges and fees were approximately equal to the second quarter of 1999. This was due to a $54 thousand reduction in merchant credit card processing fees resulting from the exiting of the business in the fourth quarter of 1999, offset by increases in bank card-related fee income and deposit account related fees. Insurance agency commissions increased $17 thousand, or 9%, compared to the second quarter of 1999. Non-interest income of $2,044 million in the first six months of 2000 decreased $98 thousand, or 4.6%, compared with the first six months in 1999. The decrease is due in part to a large commission earned in the first quarter of 1999 by Dakin, which did not recur in 2000. Also contributing to the decrease was a $13 loss on the sale of securities in 2000 compared with a $23 gain in the comparable six-month period in 1999. Total service charges netted to a slight decline due to the decline in merchant credit card processing, partially offset by an increase in deposit account related fees. The increase in trust income partially offset these decreases. NON-INTEREST EXPENSE Total non-interest expense increased $37 thousand, or 5.2%, in the second quarter 2000 compared with the second quarter 1999. The increase was due in part to labor costs, including pension and other benefits, relating to salary increases. Other expenses increased as a result of the public filings required by the newly formed LCNB Corp. as well as acquisition costs related to the Dakin merger. Additionally, other expenses increased as a result of increased volumes of ATM and credit card activity, as well as incremental telecommunication charges related to upgrading of the branch communication system. These other expense increases were partially offset by decreases related to merchant credit card processing. Lower marketing costs and state franchise taxes partially offset the overall increase in non-interest expenses. Total non-interest expense increased $100 thousand, or 7.0%, in the six months ended June 30, 2000 compared with the first six months of 1999. The increase was primarily due to the same factors as noted above. -10- FINANCIAL CONDITION The following table highlights the changes in the balance sheet. The analysis uses quarterly averages to give a better indication of balance sheet trends.
CONDENSED AVERAGE BALANCE SHEETS (thousands) 2nd Qtr. 1st Qtr. 4th Qtr. 2000 2000 1999 ASSETS Interest-earning: Interest-bearing deposits with banks $ 5,492 5,492 5,492 Federal funds sold 2,037 5,023 12,647 Securities available for sale 97,086 103,515 106,406 Loans 304,195 290,168 283,647 ------- ------- ------- Total interest-earning assets 408,810 404,198 408,192 ------- ------- ------- Noninterest-earning: Cash and due from banks 15,389 15,217 15,655 All other assets 18,037 18,467 17,419 Allowance for credit losses (2,001) (2,002) (2,006) ------- ------- ------- Total assets $440,235 435,880 439,260 ======= ======= ======= LIABILITIES Interest bearing: Interest-bearing deposits $338,446 338,341 341,935 Other borrowings 4,916 1,447 1,487 ------- ------- ------- Total interest-bearing liabilities 343,362 339,788 343,422 Noninterest-bearing: Noninterest-bearing deposits 52,183 51,339 50,272 All other liabilities 1,169 1,789 1,558 ------- ------- ------- Total liabilities 396,714 392,916 395,252 SHAREHOLDERS' EQUITY 43,521 42,964 44,008 ------- ------- ------- Total liabilities and shareholders' equity $440,235 435,880 439,260 ======= ======= =======
-11- Total average assets increased $4.4 million in the second quarter of 2000 from the first quarter and $1.0 million from the fourth quarter of 1999. The increase from the first quarter is primarily due to growth in real estate mortgage, commercial and installment loans as LCNB Corp. continues to shift assets into the higher yielding loan portfolio. The increase from the fourth quarter of 1999 is due to a $20.5 million, or 7.2%, increase in average loans partially offset by a reduction in federal funds sold and securities available for sale. Additionally, Lebanon expended $2.1 million in additions to premises and equipment in the six months ended June 30, 2000. These additions primarily related to the construction of two new branches opened in June 2000, which replaced branches existing in Oxford and Goshen, the remodeling of the Columbus Avenue branch and a new ATM at the Hamilton office location. Average interest-bearing deposits were relatively equal to the first quarter of 2000 and decrease $3.5 million from the fourth quarter of 1999. Other borrowings increased $3.5 million in the second quarter from the first quarter due to $6 million in borrowings with the Federal Home Loan Bank in June and an increase in average funds purchased to fund loan growth and additions to premises and equipment. Average noninterest-bearing deposits increased $.8 million from the first quarter of 2000 and $1.9 million from the fourth quarter of 1999. REGULATORY CAPITAL Lebanon Citizens and LCNB Corp. 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 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 LCNB Corp.'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 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 LCNB Corp. follows:
At At June 30, December 31, 2000 1999 Regulatory Capital: Shareholders' equity $44,160 42,687 Goodwill and other intangibles (4,453) (4,763) Net unrealized securities gains 1,237 1,298 ------ ------ Tier 1 risk-based capital 40,944 39,222 Eligible allowance for loan losses 2,000 2,000 ------ ------ Total risk-based capital $42,944 41,222 ======= ====== Capital Ratios: Total risk-based 15.1% 15.3% Tier 1 risk-based 14.4 % 14.6% Leverage 9.5 % 9.1%
-12- 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 86% of total deposits at June 30, 2000 were "core" deposits. Core deposits, for this purpose, are defined as total deposits less public funds and certificates of deposit greater than $100,000. At June 30, 2000, Lebanon Citizens liquid assets amounted to $119 million or 26.4% of total gross assets, down from $135 million or 30.6% at December 31, 1999. Secondary sources of liquidity include Lebanon Citizens' 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. Loans to deposits were 79% and 73%, at June 30, 2000 and December 31, 1999, respectively. Lebanon Citizens experienced no liquidity or operational problems as a result of the current liquidity levels. YEAR 2000 COMPLIANCE LCNB Corp. experienced no difficulties resulting from Y2K in the date transition at year-end 1999 nor were any difficulties encountered within the first six months of 2000. Lebanon Citizens' testing and preparation for Y2K included future dates beyond December 31, 1999. Management anticipates no difficulties from future date changes. 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, 1999 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, 1999. There have been no material changes in Lebanon Citizens' market risks, which for Lebanon Citizens is primarily interest rate risk. -13- 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 - On April 18, 2000, the Annual Meeting of the shareholders of LCNB Corp. was held. The following members of the Board of Directors of LCNB Corp. were elected as Class I directors for terms expiring at the Annual Meeting in 2003 by the votes indicated: Director For Against Abstain -------- ----- ------- ------- Stephen P. Wilson 1,505,725 0 31,460 David S. Beckett 1,499,485 0 37,007 Robert C. Cropper 1,536,885 0 300 The following Class II and III members of the Board of Directors have terms expiring in 2001 and 2002: Marvin Young, Kathleen Porter Stolle, Corwin M. Nixon, George L. Leasure, William H. Kaufman, James B. Miller and Howard E. Wilson. Item 5. Other Information - Not Applicable Item 6. Exhibits and Reports on Form 8-K a. Exhibits
Exhibit No. Description 27.1 Financial Data Schedule for the Six Months Ended June 30, 2000. 27.2 Restated Financial Data Schedule for the Six Months Ended June 30, 1999
b. On April 14, 2000, LCNB Corp. filed a Form 8-K with the Securities and Exchange Commission reporting the acquisition of Dakin Insurance Agency, Inc. and the issuance of a press release by LCNB Corp. announcing its election to become a financial holding company pursuant to the Gramm-Leach-Bliley Act. -14- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LCNB Corp. Registrant Date: July 28, 2000 /s/Steve P. Foster ------------------------ Steve P. Foster Vice President and Chief Financial Officer -15- EX-27 2 0002.txt
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE QUARTERLY REPORT FOR LCNB CORP. ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 18,178 5,492 1,200 0 94,312 0 0 313,695 2,000 451,939 396,816 0 10,963 0 0 0 10,560 33,600 451,939 12,581 2,734 265 15,580 7,358 7,466 8,114 83 13 6,653 3,422 3,422 0 0 2,477 0 0 0 0 0 0 0 2,000 107 24 2,000 0 0 2,000
EX-27 3 0003.txt RESTATED
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE QUARTERLY REPORT FOR LCNB CORP. ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 11,684 5,492 4,100 0 114,465 0 0 273,744 2,000 426,424 380,525 2,369 1,421 0 0 0 10,560 31,549 426,424 11,058 3,162 369 14,589 6,457 6,488 8,101 124 23 6,449 3,670 3,670 0 0 2,635 1.48 1.48 7.52 0 34 0 0 2,000 140 16 2,000 0 0 2,000
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