-----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, NpaOHrmBrUQc+HOM6HTX25fbvVO6JDme3fm+aob8GPLf5XBNmWroKUf21HLNkXzM 3lnXJTnzjZ8UVvgMOvG6aQ== 0001012364-04-000012.txt : 20040510 0001012364-04-000012.hdr.sgml : 20040510 20040510163244 ACCESSION NUMBER: 0001012364-04-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20040510 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: 04793539 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 lcnb10qfiirst.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 March 31, 2004 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 May 7, 2004, was 3,363,306 shares. LCNB Corp. INDEX Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - March 31, 2004, and December 31, 2003 . . . . . . . .1 Consolidated Statements of Income - Three Months Ended March 31, 2004 and 2003. . . . . . . . . . . . . . . . . . . . . . .2 Consolidated Statements of Shareholders' Equity - Three Months Ended March 31, 2004 and 2003. . . . . .3 Consolidated Statements of Cash Flows - Three Months Ended March 31, 2004 and 2003. . . . . .4 Notes to Consolidated Financial Statements . . . . . .5-11 Independent Accountants' Review Report . . . . . . . .12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . 13-23 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. . . 26 Item 4. Submission of Matters to a Vote of Security Holders . 26 Item 5. Other Information . . . . . . . . . . . . . . . . . . 26 Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . 26 Part I - Financial Information Item 1. Financial Statements LCNB Corp. and Subsidiaries Consolidated Balance Sheets (thousands)
March 31, December 31, 2004 2003 (unaudited) (a) ASSETS: Cash and due from banks $ 16,292 11,784 Federal funds sold 8,875 22,625 ------- ------- Total cash and cash equivalents 25,167 34,409 ------- ------- Securities available for sale, at market value 136,868 150,939 Federal Reserve Bank stock and Federal Home Loan Bank stock, at cost 2,985 2,962 Loans 318,662 317,833 Less-allowance for loan losses 2,150 2,150 ------- ------- Net loans 316,512 315,683 ------- ------- Premises and equipment, net 12,406 12,009 Intangible assets 2,667 2,832 Other assets 4,571 4,774 ------- ------- TOTAL ASSETS $501,176 523,608 ======= ======= LIABILITIES: Deposits- Noninterest-bearing $ 70,714 66,159 Interest-bearing 368,425 396,874 ------- ------- Total deposits 439,139 463,033 Long-term debt 4,182 4,197 Accrued interest and other liabilities 4,315 3,930 ------- ------- TOTAL LIABILITIES 447,636 471,160 ------- ------- 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 34,607 33,872 Treasury shares at cost, 89,728 and 88,754 shares at March 31, 2004 and December 31, 2003, respectively (4,426) (4,356) Accumulated other comprehensive income, net of taxes 2,246 1,819 ------- ------- TOTAL SHAREHOLDERS' EQUITY 53,540 52,448 ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $501,176 523,608 ======= =======
Financial information as of December 31, 2003, 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 share and per share data) (unaudited)
Three Months Ended March 31, ----------------------- 2004 2003 INTEREST INCOME: Interest and fees on loans $ 5,060 5,769 Dividends on Federal Reserve Bank and Federal Home Loan Bank stock 23 22 Interest on investment securities- Taxable 747 753 Non-taxable 494 533 Other short-term investments 34 40 ----- ----- TOTAL INTEREST INCOME 6,358 7,117 ----- ----- INTEREST EXPENSE: Interest on deposits 1,808 2,251 Interest on short-term borrowings 1 2 Interest on long-term borrowings 53 71 ----- ----- TOTAL INTEREST EXPENSE 1,862 2,324 ----- ----- NET INTEREST INCOME 4,496 4,793 PROVISION FOR LOAN LOSSES 90 118 ----- ----- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,406 4,675 ----- ----- NON-INTEREST INCOME: Trust income 365 255 Service charges and fees 899 637 Net gain on sale of securities 127 - Insurance agency income 326 361 Gains from sales of mortgage loans 21 227 Gain from sale of credit card portfolio 403 - Other operating income 37 35 ----- ----- TOTAL NON-INTEREST INCOME 2,178 1,515 ----- ----- NON-INTEREST EXPENSE: Salaries and wages 1,772 1,704 Pension and other employee benefits 532 484 Equipment expenses 248 232 Occupancy expense - net 296 281 State franchise tax 137 117 Marketing 135 107 Intangible amortization 152 150 ATM expense 76 69 Other non-interest expense 932 791 ----- ----- TOTAL NON-INTEREST EXPENSE 4,280 3,935 ----- ----- INCOME BEFORE INCOME TAXES 2,304 2,255 PROVISION FOR INCOME TAXES 642 649 ----- ----- NET INCOME $ 1,662 1,606 ===== ===== Dividends declared per common share $ .55 .525 Earnings per common share: Basic $ .99 .93 Diluted .99 .93 Average shares outstanding: Basic 1,686,791 1,720,676 Diluted 1,687,267 1,720,676
The accompanying notes to the consolidated financial statements are an integral part of these statements. -2- LCNB Corp. and Subsidiaries Consolidated Statements of Shareholders' Equity (thousands) (unaudited)
Accumulated Other Total Common Retained Treasury Comprehensive Shareholders' Comprehensive Shares Surplus Earnings Shares Income Equity Income Balance January 1, 2003 $10,560 10,553 30,768 (2,193) 2,242 51,930 Net income 1,606 1,606 1,606 Net unrealized gain on available-for-sale securities (net of taxes of $261) 507 507 507 ----- Total comprehensive income $ 2,113 ===== Treasury shares purchased (43) (43) Cash dividends declared- $0.525 per share (903) (903) ------ ------ ------ ----- ------ ------ Balance March 31, 2003 $10,560 10,553 31,471 (2,236) 2,749 53,097 ====== ====== ====== ===== ====== ====== Balance January 1, 2004 $10,560 10,553 33,872 (4,356) 1,819 52,448 Net income 1,662 1,662 1,662 Net unrealized gain on available-for-sale securities (net of taxes of $264) 512 512 512 Reclassification adjustment for net realized gain on sale of available-for-sale securities included in net income (net of taxes of $43) (85) (85) (85) ----- Total comprehensive income $ 2,089 ===== Treasury shares purchased (70) (70) Cash dividends declared- $0.55 per share (927) (927) ------ ------ ------ ----- ------ ------ Balance March 31, 2004 $10,560 10,553 34,607 (4,426) 2,246 53,540 ====== ====== ====== ===== ====== ====== The accompanying notes to the consolidated financial statements are an integral part of these statements.
-3- LCNB Corp. and Subsidiaries Consolidated Statements of Cash Flows (thousands) (unaudited)
Three Months Ended March 31, --------------------- 2004 2003 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,662 1,606 Adjustments to reconcile net income to net cash Provided by operating activities - Depreciation, amortization and accretion 783 749 Provision for loan losses 90 118 Federal Home Loan Bank stock dividends (23) (22) Realized gain on sales of securities available for sale (127) - Realized gain on sale of credit card portfolio (403) - Origination of mortgage loans for sale (578) (9,725) Realized gains from sales of mortgage loans (21) (227) Proceeds from sales of mortgage loans 593 9,855 (Increase) decrease in income receivable 229 (148) (Increase) decrease in other assets (29) (210) Increase (decrease) in other liabilities 383 471 ------ ------ NET CASH PROVIDED BY OPERATING ACTIVITIES 2,559 2,467 ------ ------ CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of securities available for sale 11,510 - Proceeds from maturities of securities available for sale 13,676 9,803 Purchases of securities available for sale (10,618) (14,332) Proceeds from sale of credit card portfolio 2,963 - Net decrease (increase) in loans (3,551) 4,467 Purchases of premises and equipment (659) (183) Proceeds from sales of premises and equipment 2 - ------ ------ NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 13,323 (245) ------ ------ CASH FLOWS FROM FINANCING ACTIVITIES: Net change in deposits (23,894) 3,136 Net change in short-term borrowings (218) (2,618) Principal payments on long-term debt (15) (14) Cash dividends paid (927) (903) Purchases of treasury shares (70) (43) ------ ------ NET CASH PROVIDED BY FINANCING ACTIVITIES (25,124) (442) ------ ------ NET CHANGE IN CASH AND CASH EQUIVALENTS (9,242) 1,780 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 34,409 25,604 ------ ------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $25,167 27,384 ====== ====== SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid $ 1,949 2,935 Income taxes - -
The accompanying notes to the consolidated financial statements are an integral part of these statements. -4- 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 months ended March 31, 2004 are not necessarily indicative of the results to be expected for the full year ending December 31, 2004. 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 nine of this Form 10-Q has been subject to a review by J.D. Cloud & Co. L.L.P., the Company's independent certified public accountants, as described in their report contained herein. 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. The computations were as follows for the three months ended March 31 (thousands, except share and per share data): -5- LCNB Corp. and Subsidiaries Notes to the Consolidated Financial Statements (Unaudited) (Continued)
For the Three Months Ended March 31, 2004 2003 Net income (loss) $ 1,662 1,606 ========= ========= Weighted average number of shares outstanding used in the calculation of basic earnings per common share 1,686,791 1,720,676 Add - Dilutive effect of stock options 476 - --------- --------- Adjusted weighted average number of shares outstanding used in the calculation of diluted earnings per common share 1,687,267 1,720,676 ========= ========= Basic earnings per common share $0.99 0.93 ========= ========= Diluted earnings per common share $0.99 0.93 ========= =========
NOTE 3 - INVESTMENT SECURITIES Available-for-sale investment securities, recorded at estimated market value, consist of the following (thousands):
March 31, December 31, 2004 2003 -------- ----------- U.S. Treasury notes $ - 2,149 U.S. Agency notes 43,065 61,822 U.S. Agency mortgage-backed securities 29,848 20,988 Municipal securities: Non-taxable 53,202 54,409 Taxable 10,753 11,571 ------- ------- $136,868 150,939 ======= =======
-6- LCNB Corp. and Subsidiaries Notes to the Consolidated Financial Statements (Unaudited) (Continued) NOTE 4 - LOANS Major classifications of loans at March 31, 2004 and December 31, 2003 are as follows (thousands):
March 31, December 31, 2004 2003 -------- ----------- Commercial and industrial $ 30,680 30,519 Commercial, secured by real estate 100,590 99,461 Residential real estate 145,245 139,305 Consumer, excluding credit card 39,632 43,283 Agricultural 1,337 1,192 Credit card 28 2,707 Other loans 239 212 Lease financing 377 588 ------- ------- 318,128 317,267 Deferred net origination costs 534 566 ------- ------- 318,662 317,833 Allowance for loan losses (2,150) (2,150) ------- ------- Loans - net $316,512 315,683 ======= =======
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 March 31, 2004 and December 31, 2003 were $52,856,000 and $54,802,000, respectively. Loans sold to the FHLMC during the quarters ended March 31, 2004 and 2003 totaled $579,000 and $9,725,000, 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 $6,000 and $96,000 in mortgage servicing rights were capitalized during the quarters ended March 31, 2004 and 2003, respectively, and are being amortized to loan servicing income in proportion to and over the period of estimated servicing income. -7- LCNB Corp. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) (Continued) NOTE 4 - LOANS (continued) Changes in the allowance for loan losses were as follows (thousands):
For the Three Months Ended March 31, 2004 2003 --------- --------- Balance - beginning of year $2,150 2,000 Provision for loan losses 90 118 Charge-offs (107) (138) Recoveries 17 20 ----- ----- Balance - end of period $2,150 2,000 ===== =====
Charge-offs for the three months ended March 31, 2004 and 2003, consisted of consumer and credit card loans. There were no charge-offs on residential real estate or commercial loans for either period. Nonaccrual loans at March 31, 2004 and December 31, 2003 totaled $2,791,000 and $794,000, respectively. Included in these balances were commercial loans in the amount of $2,594,000 at March 31, 2004 and $564,000 at December 31, 2003. The March 31, 2004 amount includes $2,030,000 of related commercial loans that were previously classified as loans past due 90 days or more and still accruing at December 31, 2003. These loans are secured by a combination of mortgages and other collateral. Information received during the first quarter, 2004 raised uncertainties concerning the collectibility of certain collateral and management transferred the loans to the nonaccrual classification. -8- LCNB Corp. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) (Continued) NOTE 4 - LOANS (continued) At March 31, 2004 and December 31, 2003, loans past due 90 days or more and still accruing were $366,000 and $2,442,000. The decrease is primarily due to the reclassification of commercial loans mentioned above. NOTE 5 - OTHER BORROWINGS At March 31, 2004 and December 31, 2003, accrued interest and other liabilities included U.S. Treasury demand note borrowings of approximately $415,000 and $633,000, respectively. NOTE 6 - 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. 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 March 31, 2004 and December 31, 2003 were as follows (thousands):
March 31, December 31, 2004 2003 --------- --------- Commitments to extend credit $67,272 74,828 Standby letters of credit 6,729 6,770
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 March 31, 2004 and December 31, 2003, outstanding guarantees of $1,839,000 and $1,880,000, respectively, were issued to developers and contractors. These guarantees generally expire within one year and are fully secured. In addition, LCNB has an approximate $4.9 million participation at March 31, 2004 and December 31, 2003 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. -9- LCNB Corp. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) (Continued) NOTE 6 - COMMITMENTS AND CONTINGENT LIABILITIES (continued) 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. At March 31, 2004, LCNB is committed under various contracts to expend approximately $320,000 to complete certain building renovation projects and information technology system improvements. 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 7 - 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. Stock options for 2,027 shares with an exercise price of $70.63 were granted to key executive officers of LCNB during the first quarter, 2004. At March 31, 2004, 4,791 stock options with a weighted average exercise price of $60.10 were outstanding. The options expire in 2013 and 2014. No options have been exercised as of March 31, 2004. 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 2002 was the first year stock options were outstanding, this quarter's pro- forma effect is not indicative of the pro-forma effect on future quarters and years. -10- LCNB Corp. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) (Continued) NOTE 8 - EMPLOYEE BENEFITS LCNB has a noncontributory defined benefit retirement plan that covers all regular full-time employees. The components of net periodic pension cost for the three months ended March 31, 2004 and 2003, are summarized as follows (thousands):
For the Three Months Ended March 31, 2004 2003 --------- --------- Service cost $163 163 Interest cost 62 56 Expected return on plan assets (81) (78) Amortization on net(gain)loss 18 24 ---- --- Net periodic pension cost $162 165 ==== ===
LCNB previously disclosed in consolidated financial statements for the year ended December 31, 2003, that it expected to contribute $650,000 to its pension plan in 2004. As of March 31, 2004, no contributions have been made. NOTE 9 - SUBSEQUENT EVENT The Board of Directors of LCNB at their regular meeting of April 13, 2004 declared a stock dividend of one share for each share owned to shareholders of record April 20, 2004. The stock dividend was paid on April 30, 2004 and will be accounted for as a stock split. NOTE 10 - ACCOUNTING POLICIES Statement of Financial Accounting Standards ("SFAS") No. 132 (revised 2003), "Employers' Disclosures about Pensions and Other Postretirement Benefits", was issued in December, 2003, and replaces the original SFAS No. 132. SFAS No. 132 (revised 2003) retains the disclosures required by the original SFAS No. 132 and requires additional disclosures, including certain disclosures to be included in interim period financial statements. Such disclosures are reflected in Note 8 to these financial statements. -11- 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 March 31, 2004, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three-month periods ended March 31, 2004 and 2003. 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, 2003 (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 16, 2004, 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, 2003, is fairly stated in all material respects. /s/ J.D. Cloud & Co. L.L.P. ---------------------------------- J.D. Cloud & Co. L.L.P. Cincinnati, Ohio April 14, 2004 -12- 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 $1,662,000 for the three months ended March 31, 2004, which was $56,000 or 3.49% greater than the $1,606,000 earned during the three months ended March 31, 2003. Basic earnings per share were $0.99 for the first quarter of 2004, compared with $0.93 per share earned in the first quarter of 2003. Annualized performance ratios for the 2003 period included a return on average assets of 1.32% and a return on average equity of 12.61%, compared with 1.28% and 12.36%, respectively, for the comparable period in 2003. LCNB's earnings for the quarter ended March 31, 2004 included $530,000, or $350,000 on an after tax basis, in gains from sales of investment securities totaling $11.4 million and credit card receivables totaling approximately $2.6 million. The proceeds from the investment securities sale were primarily used to purchase securities with a slightly longer maturity and higher average interest rate than the ones sold. LCNB management decided to exit the credit card market and sell its receivables to MBNA America because of the high administrative costs of servicing a small credit card portfolio. LCNB will continue to offer credit card products under a marketing agreement with MBNA. Without these gains, LCNB's return on average assets and return on average equity for the first quarter, 2004, would have been 1.04% and 9.95%, 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 first quarter of 2004 and 2003, average balances for the different types of interest earning assets and interest bearing liabilities, the income or expense related to each item, and the resultant average yields earned or rates paid. -13-
Three months ended March 31, ---------------------------- 2004 2003 ---- ---- Average Interest Average Average Interest Average Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Balance Paid Rate Balance Paid Rate (Dollars in thousands) Loans(1) $318,089 $ 5,062 6.45% $324,666 $ 5,774 7.21% Federal funds sold 14,206 34 0.97 14,246 40 1.14 Federal Reserve Bank stock 647 - - 647 - - Federal Home Loan Bank stock 2,315 23 4.03 2,225 22 4.01 Investment securities: Taxable 88,049 747 3.44 77,863 753 3.92 Non-taxable(2) 53,675 748 5.65 57,099 808 5.74 ------- ------ ------- ------ Total earning assets 476,981 6,614 5.62 476,746 7,397 6.29 Non-earning assets 33,504 33,122 Allowance for loan losses (2,153) (2,005) ------- ------- Total assets $508,332 $507,863 ======= ======= Interest-bearing deposits $378,089 1,808 1.94 $383,986 2,251 2.38 Short-term debt 430 1 0.94 624 2 1.30 Long-term debt 4,189 53 5.13 6,246 71 4.61 ------- ------ ------- ------ Total interest-bearing liabilities 382,708 1,862 1.97 390,856 2,324 2.41 ------ ------ -14- Three months ended March 31, ---------------------------- 2004 2003 ---- ---- Average Interest Average Average Interest Average Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Balance Paid Rate Balance Paid Rate (Dollars in thousands) Demand deposits 69,571 61,194 Other liabilities 3,017 3,141 Capital 53,036 52,672 ------- ------- Total liabilities and capital $508,332 $507,863 ======= ======= Net interest rate spread(3) 3.65 3.88 Net interest margin on a taxable equivalent basis(4) $ 4,752 4.04 $ 5,073 4.32 ====== ====== Ratio of interest-earning assets to interest-bearing liabilities 124.63% 121.97% (1) Includes nonaccrual loans if any. Income from tax-exempt loans is included in interest income on a taxable equivalent basis, using an incremental rate of 34%. (2) Income from tax-exempt securities is included in interest income on a taxable equivalent basis. Interest income has been divided by a factor comprised of the complement of the incremental tax rate of 34%. (3) The net interest spread is the difference between the average rate on total interest-earning assets and interest-bearing liabilities. (4) The net interest margin is the taxable-equivalent net interest income divided by average interest-earning assets.
-15- The following table presents the changes in 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 March 31, 2004 compared to the three months ended March 31, 2003. 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.
Three Months Ended March 31, 2004 vs. 2003 -------------------------- Increase (decrease) due to -------------------------- Volume Rate Total (In thousands) Interest Earning Assets Loans $(115) (597) (712) Federal funds sold - (6) (6) Federal Home Loan Bank stock 1 - 1 Investment securities Taxable 92 (98) (6) Nontaxable (48) (12) (60) --- ----- ----- Total interest income (70) (713) (783) Interest Bearing Liabilities Deposits (34) (409) (443) Short-term debt (1) - (1) Long-term debt (25) 7 (18) --- ----- ----- Total interest expense (60) (402) (462) --- ----- ----- Net interest income $(10) (311) (321) === ===== =====
Net interest income on a fully tax equivalent basis for the first quarter of 2004 totaled $4,752,000, a decrease of $321,000 from the first quarter of 2003. Total interest income decreased $783,000, partially offset by a decrease of $462,000 in total interest expense. The decreases in both interest income and expense were primarily a result of market-driven decreases in the average rate earned on loans and investments and the average rate paid for deposits and borrowings. -16- 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 first quarter of 2004 was 4.04%, as compared to 4.32% for the first quarter, 2003. The net interest margin decreased because rates earned on loans and other investments decreased more rapidly than rates paid for deposits and other borrowings. The decrease in total interest income was primarily due to a 67 basis point (a basis point equals 0.01%) decrease in the average rate on earning assets, from 6.29% for the first quarter of 2003 to 5.62% for the first quarter of 2004. A secondary component to the decrease in total interest income was a $6.6 million decrease in average loans. The decrease in loans was primarily in installment loans and real estate mortgage loans, partially offset by increases in "Homeline" home equity loans and commercial loans. These decreases to total interest income were slightly offset by the positive effect of a $6.8 million increase in average investment securities. The decrease in total interest expense was primarily due to a 44 basis point decrease in the average liability rate, from 2.41% for the first quarter, 2003 to 1.97% for the first quarter, 2004, and secondarily to an $8.1 million decrease in average interest-bearing liabilities. Average interest-bearing deposits decreased $5.9 million and average long-term debt decreased $2.1 million. -17- 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 loan 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 March 31, 2004 2003 (thousands) Balance, beginning of period $ 2,150 2,000 Charge-offs (107) (138) Recoveries 17 20 ----- ----- Net charge-offs (90) (118) ----- ----- Provision for loan losses 90 118 ----- ----- Balance, end of period $ 2,150 2,000 ===== =====
The following table sets forth information regarding the past due, non- accrual and renegotiated loans of LCNB at the dates indicated:
March 31, December 31, 2004 2003 ------------- ---------- (thousands) Loans accounted for on non-accrual basis $2,791 794 Accruing loans which are past due 90 days or more 366 2,442 Renegotiated loans - - ------ ----- Total $3,157 3,236 ====== =====
The increase in non-accrual loans and the decrease in accruing loans which are past due 90 days or more is due to the reclassification of $2,030,000 in commercial loans from accruing at December 31, 2003 to non-accrual at March 31, 2004. -18- NON-INTEREST INCOME Non-interest income for 2004, excluding the investment security and credit card gains, was $133,000 or 8.8% greater during the first quarter of 2004 as compared to the first quarter of 2003. Trust income was $110,000 greater primarily due to growth in trust assets and an increase in brokerage income due to new business. Total trust assets grew from $119.0 million at March 31, 2003 to $168.6 million at March 31, 2004. Service charges and fees increased $262,000 or 41.1% primarily due to an increase in the number of non-sufficient fund charges. Partially offsetting the increases and the gains from the sales of investment securities and credit card receivables was a $206,000 or 90.7% decrease in gains from sales of mortgage loans. This was due to a decrease in the volume of loans sold from $9,725,000 for the first quarter of 2003 to $579,000 during the first quarter of 2004. NON-INTEREST EXPENSE Total non-interest expense increased $345,000 or 8.8% during the first quarter, 2004 compared with the first quarter, 2003. Salaries and wages increased $68,000 or 4.0% primarily due to routine salary and wage increases. Pension and other employee benefits increased $48,000 or 9.9% due to increased pension expense, increased expense for social security and medicare tax matching, and increased educational costs for employees. Other non- interest expense increased $141,000 or 17.8% due to increased expenses for maintenance contracts on computer software, postage, office supplies, legal fees because of work related to loan delinquencies, and other miscellaneous costs. INCOME TAXES LCNB's effective tax rates for the three months ended March 31, 2004 and 2003 were 27.9% and 28.8%, respectively. The difference between the statutory rate of 34.0% and the effective tax rate is primarily due to tax-exempt interest income. -19- 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 QUARTERLY BALANCE SHEETS ------------------------------------------ March 31, December 31, September 30, 2004 2003 2003 (thousands) ASSETS Interest-earning: Federal funds sold $ 14,206 18,633 17,016 Investment securities 144,686 153,753 152,989 Loans 318,089 315,818 318,357 ------- ------- ------- Total interest-earning assets 476,981 488,204 488,362 Noninterest-earning: Cash and due from banks 13,992 13,525 14,019 All other assets 19,512 20,469 19,210 Allowance for credit losses (2,153) (2,108) (2,031) ------- ------- ------- Total assets $508,332 520,090 519,560 ======= ======= ======= LIABILITIES Interest bearing: Interest-bearing deposits $378,089 387,680 390,455 Short-term debt 430 747 731 Long-term debt 4,189 5,769 6,218 ------- ------- ------- Total interest-bearing liabilities 382,708 394,196 397,404 Noninterest-bearing: Noninterest-bearing deposits 69,571 69,268 65,147 All other liabilities 3,017 3,163 3,560 ------- ------- ------- Total liabilities 455,296 466,627 466,111 SHAREHOLDERS' EQUITY 53,036 53,463 53,449 ------- ------- ------- Total liabilities and shareholders' equity $508,332 520,090 519,560 ======= ======= =======
-20- March 31, 2004 vs. December 31, 2003. Total average interest-earning assets decreased $11.2 million when comparing the quarter ended March 31, 2004 to the quarter ended December 31,2003. Federal funds sold decreased $4.4 million and investment securities decreased $9.1 million, while loans increased $2.3 million. Average balances in the real estate mortgage loan, Homeline home equity loan, and commercial loan portfolios grew during the first quarter, while average installment loans decreased. Real estate mortgage loans grew during the quarter because management has placed more new loans in the portfolio and has sold fewer new loans in the secondary market, combined with a much lower level of refinance activity. Besides supporting loan growth, the declines in federal funds sold and investment securities were used to fund an $11.5 million decrease in total average interest-bearing liabilities. Most of the decrease was in interest-bearing deposits, which decreased $9.6 million on an average basis, while average long-term debt decreased $1.6 million. Most of the deposit decrease was in NOW and certificates of deposit accounts, partially offset by growth in money fund investment and regular savings accounts. Long-term debt decreased because of the maturation of a $2.0 million borrowing during December, 2003. Total deposits at March 31, 2004 were approximately $23.9 million less than total deposits at December 31, 2003. Approximately $15.5 million of this decrease was due to a new trust account that was obtained near year end, 2003. The funds were temporarily deposited in a liquid account at Lebanon Citizens National Bank until the trust department could invest them in other instruments during early 2004. 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 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%. -21- A summary of the regulatory capital and capital ratios of LCNB follows:
At At March 31, December 31, 2004 2003 (Dollars in thousands) Regulatory Capital: Shareholders' equity $ 53,540 52,448 Goodwill and other intangibles (2,391) (2,550) Net unrealized securities gains (2,246) (1,819) ------ ------ Tier 1 risk-based capital 48,903 48,079 Eligible allowance for loan losses 2,150 2,150 ------ ------ Total risk-based capital $ 51,053 50,229 ====== ====== Capital Ratios: Total risk-based 16.16% 15.58% Tier 1 risk-based 15.48% 14.91% Tier 1 leverage 9.72% 9.34% 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%
-22- 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 included cash, federal funds sold and securities available for sale. At March 31, 2004, LCNB liquid assets amounted to $162.0 million or 32.3% of total assets, a decrease from $185.3 million or 35.4% at December 31, 2003. Liquidity is also provided by access to core funding sources, primarily core depositors in the bank's primary market area. LCNB does not solicit brokered deposits as a funding source. The liquidity of LCNB is enhanced by the fact that 89.8% of total deposits at March 31, 2004 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 current liquidity levels. RECENT ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standards ("SFAS") No. 132 (revised 2003), "Employers' Disclosures about Pensions and Other Postretirement Benefits", was issued in December, 2003, and replaces the original SFAS No. 132. SFAS No. 132 (revised 2003) retains the disclosures required by the original SFAS No. 132 and requires additional disclosures, including certain disclosures to be included in interim period financial statements. Such disclosures are reflected in Note 8 to these 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, 2003 see Item 7A, Quantitative and Qualitative Disclosures about Market Risks, in the Form 10-K for the year ended December 31, 2003, incorporated by reference. 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 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 September 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 Subsidiary Item 1. Legal Proceedings - Not Applicable Item 2. Changes in Securities and Use of Proceeds 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 March 31, 2004, 17,051 shares have been purchased under this program. The following table shows information relating to the repurchase of shares under the Market Repurchase Program during the three months ended March 31, 2004:
Total Number Maximum of Shares Number Purchased as of Shares Part of Publicly that May Yet Be Total Number Average Announced Purchased Under of Shares Price Paid Plans or the Plans or Purchased Per Share Programs Programs --------- --------- -------- -------- January - $ - - 33,923 February 974 72.15 974 32,949 March - - - 32,949 ---- ---- Total 974 $ 72.15 974 32,949 ==== ======= ==== ======
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. No shares were purchased under this program during the three months ended March 31, 2004 and a total of 72,222 shares have been purchased under this program since its inception. -25- Item 3. Defaults Upon Senior Securities - Not Applicable Item 4. Submission of Matters to a Vote of Security Holders - Not Applicable Item 5. Other Information - Not Applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit No. Title 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. (b) Reports on Form 8-K Form 8-K dated January 15, 2004, reporting under Item 9 the issuance of a press release, announcing earnings of LCNB for the year ended December 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 May 10, 2004 May 10, 2004 -27- EX-15 2 exh1510qfirst.txt Exhibit 15 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Commissioners: We are aware that our report dated April 14, 2004 on our review of interim financial statements 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 periods ended March 31, 2004 and 2003 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. /s/ J.D. Cloud & Co. L.L.P. ---------------------------------- J.D. Cloud & Co. L.L.P. Cincinnati, Ohio May 10, 2004 EX-31 3 exh31110qfirst.txt Exhibit 31.1 CERTIFICATIONS In connection with the Quarterly Report of LCNB Corp. on Form 10-Q for the period ending March 31, 2004, 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 May 10, 2004 EX-31 4 exh31210qfirst.txt Exhibit 31.2 CERTIFICATIONS In connection with the Quarterly Report of LCNB Corp. on Form 10-Q for the period ending March 31, 2004, 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 May 10, 2004 EX-32 5 exh3210qfirst.txt 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 March 31, 2004 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: May 10, 2004 -----END PRIVACY-ENHANCED MESSAGE-----