UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended September 30, 1999
Commission file number 000-26121
LCNB Corp.
(Exact name of registrant as specified in its charter)
OHIO 31-1626393
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
2 North Broadway, Lebanon, Ohio 45036
(Address of principal executive offices) (Zip Code)
(513) 932-1414
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
The number of shares outstanding of the issuer's common stock, without
par value, as of October 28, 1999, was 1,760,000 shares.
LCNB Corp.
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
September 30, 1999, and December 31, 1998 . . . . . . . 1
Consolidated Statements of Income -
Three and Nine Months Ended September 30, 1999
and 1998. . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Comprehensive
Income and Changes in Shareholders' Equity -
Year Ended December 31, 1998 and Nine Months
Ended September 30, 1999. . . . . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1999 and 1998 . . . . . 4
Notes to Consolidated Financial Statements. . . . . . . . 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . 6-12
Item 3. Quantitative and Qualitative Disclosures
about Market Risks. . . . . . . . . . . . . . . . . . . 12
Part II. Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . 13
Item 2. Changes in Securities and Use of Proceeds . . . . . . .13
Item 3. Defaults by the Company on its Senior Securities. . . .13
Item 4. Submission of Matters to a Vote of Security Holders . .13
Item 5. Other Information . . . . . . . . . . . . . . . . . . 13
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . 13
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
<TABLE>
LCNB Corp. and Subsidiary
Consolidated Balance Sheets
At September 30, 1999, and December 31, 1998
(thousands)
<CAPTION>
September 30, December 31,
1999 1998
(unaudited) (a)
<S> <C> <C>
ASSETS:
Cash and due from banks $ 14,454 16,907
Federal funds sold 2,500 3,800
------- -------
Total cash and cash equivalents 16,954 20,707
Interest-bearing deposits in banks 5,492 5,492
Federal Reserve Bank stock 647 647
Securities available for sale, at
market value 113,533 123,040
Loans 281,398 267,057
Less-allowance for loan losses 2,005 2,000
------- -------
Net loans 279,393 265,057
Premises and equipment, net 8,305 8,102
Intangible assets 4,864 5,321
Accrued income receivable 3,278 3,017
Other assets 1,359 776
------- -------
TOTAL ASSETS $433,825 432,159
======= =======
LIABILITIES:
Deposits-
Noninterest-bearing $ 46,105 49,972
Interest-bearing 339,550 337,069
------- -------
Total deposits 385,655 387,041
Accrued interest and other liabilities 4,801 2,919
------- -------
TOTAL LIABILITIES 390,456 389,960
------- -------
SHAREHOLDERS' EQUITY:
Common stock-no par value, authorized
4,000,000 shares; issued and outstanding
1,760,000 shares 10,560 10,560
Surplus 11,000 11,000
Retained earnings 22,640 19,993
Accumulated other comprehensive
(loss) income, net of taxes (831) 646
------- -------
TOTAL SHAREHOLDERS' EQUITY 43,369 42,199
------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $433,825 432,159
======= =======
<FN>
(a) Financial information as of December 31, 1998, has been derived from
the audited financial statements of Lebanon Citizens National Bank
filed by the Registrant with the Commission on Form S-4.
</TABLE>
The accompanying notes to financial statements are an integral part of
these statements.
<TABLE>
LCNB Corp. and Subsidiary
Consolidated Statements of Income
(In thousands except per share data)
(unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1999 1998 1999 1998
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $5,785 5,836 16,843 17,333
Interest on federal funds sold 83 198 294 609
Interest on deposits in banks 71 60 210 179
Interest on Federal Reserve stock - - 19 19
Interest on investment securities-
Taxable 1,262 1,075 3,802 3,375
Non-taxable 315 249 937 566
------ ------ ------ -------
TOTAL INTEREST INCOME 7,516 7,418 22,105 22,081
------ ------ ------ -------
INTEREST EXPENSE:
Interest on deposits 3,328 3,509 9,785 10,589
Interest on short-term borrowings 11 13 31 37
------ ------ ------ -------
TOTAL INTEREST EXPENSE 3,339 3,522 9,816 10,626
------ ------ ------ -------
NET INTEREST INCOME 4,177 3,896 12,289 11,455
PROVISION FOR LOAN LOSSES 42 83 166 183
------ ------ ------ -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 4,135 3,813 12,123 11,272
------ ------ ------ -------
NON-INTEREST INCOME:
Trust income 255 225 709 615
Service charges and fees 578 504 1,604 1,466
Net gain on sale of securities - 5 23 16
Other operating income 22 19 76 105
------ ------ ------ -------
TOTAL NON-INTEREST INCOME 855 753 2,412 2,202
------ ------ ------ -------
NON-INTEREST EXPENSE:
Salaries and wages 1,304 1,103 3,730 3,319
Pension and other employee
benefits 283 260 902 794
Equipment 133 105 371 409
Occupancy, net 221 187 697 667
State franchise tax 157 146 465 434
Marketing 80 78 267 308
Intangible amortization 154 151 457 447
Other 675 636 2,066 1,919
------ ------ ------ -------
TOTAL NON-INTEREST EXPENSE 3,007 2,666 8,955 8,297
------ ------ ------ -------
INCOME BEFORE INCOME TAXES 1,983 1,900 5,580 5,177
PROVISION FOR INCOME TAXES 578 581 1,613 1,561
------ ------ ------ -------
NET INCOME 1,405 1,319 3,967 3,616
====== ====== ====== =======
Basic earnings per common share $ 0.80 0.75 2.25 2.05
Average shares outstanding (000's) 1,760 1,760 1,760 1,760
</TABLE>
The accompanying notes to financial statements are an
integral part of these statements.
<TABLE>
LCNB Corp. and Subsidiary
Consolidated Statements of Comprehensive Income
and Changes in Shareholders' Equity
(thousands)
(unaudited)
<CAPTION>
Accumulated
Other Total
Common Retained Comprehensive Shareholders' Comprehensive
Shares Surplus Earnings Income Equity Income
<S> <C> <C> <C> <C> <C>
Balance January 1, 1998 $10,560 11,000 17,010 86 38,656
Comprehensive Income:
Net income 5,447 5,447 $5,447
Transition adjustment
for the effect of a change
in accounting principle 473 473 473
Net unrealized gain on
available-for-sale securities
(net of taxes of $124) 241 241 241
Reclassification adjustment for
net realized gain on sale of
available-for-sale securities
included in net income (net of
taxes of $80) (154) (154) (154)
------
Total comprehensive income $6,007
=======
Cash dividends declared
($1.40 per share) (2,464) (2,464)
------ ------ ------ ------- ------
Balance December 31, 1998 $10,560 11,000 19,993 646 42,199
Comprehensive Income:
Net income 3,967 3,967 $3,967
Net unrealized loss on
available-for-sale securities
(net of tax benefit of $753) (1,462) (1,462) (1,462)
Reclassification adjustment for
net realized gain on sale of
available-for-sale securities
included in net income (net of
taxes of $8) (15) (15) (15)
-------
Total comprehensive income $2,490
=======
Cash dividends declared
($.75 per share) (1,320) (1,320)
------ ------ ------ ------- ------
Balance September 30, 1999 $10,560 11,000 22,640 (831) 43,369
====== ====== ====== ======= ======
</TABLE>
The accompanying notes to financial statements are an integral part
of these statements.
<TABLE>
LCNB Corp. and Subsidiary
Consolidated Statements of Cash Flows
(thousands)
(unaudited)
<CAPTION>
Nine Months Ended
September 30
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,967 3,616
Adjustments for non-cash items -
Depreciation and amortization 1,321 1,115
Provision for loan losses 166 183
Deferred taxes provision (benefit) (62) (135)
Realized gains on sales of securities (23) (16)
Origination of mortgage loans for sale (2,324) (8,039)
Proceeds from sales of mortgage loans 2,324 8,039
(Increase) decrease in income receivable (261) (339)
Increase (decrease) in interest payable
and other accrued expenses, net 2,122 (3,092)
----- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 7,230 1,332
----- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities available
for sale 32,319 3,099
Proceeds from maturities of securities held to
maturity - 25,172
Proceeds from sales of securities available for sale 8,175 296
Purchases of securities available for sale (33,638) (22,942)
Purchases of securities held to maturity - (2,367)
Net (increase) in loans (14,422) (5,437)
Purchases of premises and equipment (712) (798)
Proceeds from sale of premises - 274
----- -------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (8,278) (2,703)
----- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) in deposits (1,385) (3,754)
Cash dividends paid (1,320) (1,056)
----- -------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (2,705) (4,810)
----- -------
NET CHANGE IN CASH AND CASH EQUIVALENTS (3,753) (6,181)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 20,707 30,361
----- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $16,954 24,180
====== =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 9,821 10,631
Income taxes paid 1,934 1,719
</TABLE>
The accompanying notes to financial statements are an
integral part of these statements.
<PAGE>
LCNB Corp. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
Effective May 18, 1999, Lebanon Citizens National Bank ("Lebanon
Citizens"), was reorganized into a one-bank holding company structure.
Substantially all of the assets, liabilities and operations of LCNB
Corp., the new consolidated holding company, are attributable to its
wholly-owned subsidiary, Lebanon Citizens. The accompanying unaudited
consolidated financial statements include the accounts of LCNB Corp. and
Lebanon Citizens. The financial information prior to the reorganization
consists of Lebanon Citizens.
The statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and the
instructions to Form 10-Q. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, the unaudited consolidated financial statements include all
adjustments (consisting of normal, recurring accruals) considered
necessary for a fair presentation of financial position, results of
operations and cash flows for the interim periods.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Results of operations for the three months and nine months ended
September 30, 1999 are not necessarily indicative of the results to be
expected for the full year ending December 31, 1999. These unaudited
consolidated financial statements should be read in conjunction with the
consolidated financial statements, accounting policies and financial
notes thereto included in LCNB Corp.'s Form S-4 filed with the
Commission.
NOTE 2 - EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income by the
weighted average number of common shares outstanding during the period.
LCNB Corp.'s capital structure includes no potential for dilution. There
are no warrants, options or other arrangements that would increase the
number of shares outstanding.
NOTE 3 - RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities".
In most instances the standard, once adopted, precludes any held-to-
maturity security from being designated as a hedged item. Lebanon
Citizens adopted SFAS No. 133 in the fourth quarter of 1998. To
provide the flexibility in the future to designate securities as
hedged items the Bank recategorized its held-to-maturity securities as
available for sale. The amortized cost and related unrealized net
gain of the transferred securities was $42,768,000 and $716,000,
respectively, at the date of transfer. This change in accounting
principle had no effect on reported net income. Comprehensive income
for the year ended December 31, 1998 increased $473,000 after income
taxes of $243,000.
LCNB Corp. and
Lebanon Citizens National Bank
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
COMPARATIVE FINANCIAL INFORMATION
Effective May 18, 1999, Lebanon Citizens was reorganized into a one-
bank holding company structure. Prior to that date, the financial
information presented represents the assets, liabilities and
operations of Lebanon Citizens. Comparative earnings per share
information is presented on a pro forma basis.
FORWARD-LOOKING STATEMENTS
Certain matters disclosed herein may be deemed to be forward-looking
statements that involve risks and uncertainties, including regulatory
policy changes, interest rate fluctuations, loan demand, loan
delinquencies and losses, and other risks. Actual strategies and
results in future time periods may differ materially from those
currently expected. Such forward-looking statements represent
management's judgment as of the current date. LCNB Corp. disclaims,
however, any intent or obligation to update such forward-looking
statements.
RESULTS OF OPERATIONS
LCNB Corp. earned $1.405 million for the three months ended September
30, 1999 compared to $1.319 million for the three months ended
September 30, 1998. Earnings per share were $.80 for the third quarter
of 1999, up 7% from the $.75 per share earned in the third quarter of
1998. Annualized performance ratios included a return on average
assets of 1.29% and a return on average equity of 12.95%, compared
with the same ratios for the third quarter of 1998 of 1.25% and
12.71%, respectively.
For the first nine months of 1999 LCNB Corp. earned $3.967 million compared
to $3.616 million for the first nine months of 1998. Earnings per share
were $2.25 in 1999, up 9.8% from the $2.05 per share earned the same period
in 1998. Return on average assets was 1.23% for the first nine months of
1999 and return on average equity was 12.33% for the same period. The
comparable ratios for the first nine months of 1998 were 1.16% and 12.02%,
respectively.
NET INTEREST INCOME
The table below presents net interest income, average balances and
average rates.
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
NET INTEREST
INCOME (in thousands)
Book basis $ 4,177 3,896 12,289 11,455
Tax equivalent adjustment 132 105 392 239
-------- ----- ------- -------
Fully taxable basis $ 4,309 4,001 12,681 11,694
======== ===== ======= ========
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
AVERAGE BALANCES (in thousands)
Interest-earning assets $403,175 390,245 399,925 387,287
Interest-bearing liabilities 340,120 329,892 336,082 329,183
-------- ----- ------- -------
Earning assets financed by
noninterest-bearing funds $ 63,055 60,353 63,843 58,104
======== ===== ======= ========
AVERAGE RATES (fully taxable
basis)
Yield on interest-earning
assets 7.52% 7.65% 7.54% 7.71%
Cost of interest-bearing
liabilities 3.89 4.24 3.90 4.32
-------- ----- ------- -------
Interest rate spread 3.63 3.41 3.64 3.39
Contribution of noninterest-bearing
funds .61 .66 .60 .65
-------- ----- ------- -------
Net interest margin 4.24% 4.07% 4.24% 4.04%
======== ===== ======= ========
Net interest income on a fully taxable basis for the third quarter of
1999 totaled $4.309 million, up $308 thousand, or 7.7%, from the third
quarter of 1998. The $308 thousand increase in net interest income was
primarily due to a $12.9 million increase in average earning assets and a
17 basis point increase in the net interest margin.
Net interest income for the first nine months of 1999 totaled $12.681
million; up $987 thousand, or 8.4% from the first nine months of 1998.
The $987 thousand increase was primarily due to a $12.6 million increase
in average earning assets and a 20 basis point increase in the net
interest margin.
The net interest margin increased from 4.07% in the third quarter of 1998
to 4.24% in the third quarter of 1999. This 17 basis point increase was
due in part to a 35 basis point decline in the cost of average interest-
bearing liabilities, partially offset by a 13 basis point decline in the
yield on average interest-earning assets. The decline in the cost of
average interest-bearing funds resulted from the replacement of higher
cost time deposits with lower cost savings deposits. The decline in the
yield on average interest-earning assets is due to lower yields
attributable to commercial loans and mortgage loans.
The net interest margin increased from 4.04% in the first nine months of
1998 to 4.24% in the first nine months of 1999. This 20 basis point
increase resulted from a 42 basis point decline in the cost of interest-
bearing liabilities partially offset by a 17 basis point decline in yield
on interest-earning assets. These trends were attributable to the same
factors as those noted in the quarterly net interest margin comparison
above.
Average interest-earning assets totaled $403.2 million for the third
quarter of 1999, up $12.9 million from the same period in 1998. The
increase was primarily attributable to increases in commercial loans and
securities. Average earning assets for the nine month period ended
September 30, 1999 remained relatively stable when compared with the
comparable period of 1998. Average interest-bearing liabilities totaled
$340.1 million for the third quarter of 1999, up $10.2 million from the
same period in 1998. Average interest-bearing liabilities totaled $336.1
million for the nine months ended September 30, 1999, an increase of $6.9
million from the nine month period ended September 30, 1998.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The total provision for loan losses is determined based upon management's
evaluation as to the amount needed to maintain the allowance for credit
losses at a level considered appropriate in relation to the risk of
losses inherent in the portfolio. The total loan loss provision and the
other changes in the allowance for loan losses are shown below.
Quarter Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
(thousands) (thousands)
Balance, beginning of period $2,000 2,228 2,000 2,200
------ ----- ----- ------
Charge-offs 64 69 204 153
Recoveries 27 8 43 20
------ ----- ----- ------
Net charge-offs 37 61 161 133
------ ----- ----- ------
Provision for loan losses 42 83 166 183
------ ----- ----- ------
Balance, end of period $2,005 2,250 2,005 2,250
====== ===== ===== ======
Of the total charge-offs so far in 1999, $204,000 is attributable to
consumer loans. For the first nine months of 1998, consumer loans
charged off amounted to $128,000. One June 30, 1999, LCNB adopted a new
uniform charge-off policy for consumer, credit card and home mortgage
loans as mandated by the Federal Financial Institution's Examination
Council for all banks and thrifts. It includes a requirement to charge-
off open-end credit at 180 days delinquency and closed-end credit at 120
days delinquency. While this policy change resulted in an increase in
net charge-offs in the first nine months of 1999 compared with the
comparable period of 1998, management believes that no significant
difference will occur prospectively in net charge-offs as a result of
this policy change.
The following table sets forth information regarding the past-due, non-
accrual and renegotiated loans of the Bank at the dates indicated:
September 30, December 31,
1999 1998 .
(thousands)
Loans accounted for on
non-accrual basis $ - -
Accruing loans which are
past due 90 days or more 68 374
Renegotiated loans - -
----- ------
Total $68 374
===== =======
The decrease in accruing loans which are past due 90 days or more is due
primarily to the settlement of a large commercial credit in the first
half of 1999 as well as the FFIEC required change in the charge-off
policy mentioned above.
NON-INTEREST INCOME
Non-interest income of $855 thousand increased $102 thousand, or 13.5% in
the third quarter of 1999 compared to the third quarter of 1998. Trust
income of $255 thousand increased $30 thousand, or 13.3%, from the third
quarter of 1998 due to an increase in estate fees, as well as an increase
in the market value of assets under management on which fees are based.
Service charges and fees increased 14.5% due to an increase in ATM fees
resulting from five additional ATM machines, and a larger base of
cardholders and merchant relationships principally resulting from greater
penetration of markets acquired with branch purchases in September 1997.
Non-interest income of $2.412 million in the first nine months of 1999
increased $210 thousand, or 9.5%, compared with the first nine months in
1998 due primarily to the reasons mentioned in the preceding paragraph.
The decline in Other Operating Income was attributable to a gain recorded
in 1998 on the sale of property in connection with the consolidation of
branches in Waynesville, which did not recur in 1999.
NON-INTEREST EXPENSE
Total non-interest expense increased $341 thousand, or 12.8%, in the
third quarter 1999 compared with the third quarter 1998. The increase
was due in part to labor costs, including pension and other benefits,
relating to salary increases.
Total non-interest expense increased $658 thousand, or 7.9%, in the nine
months ended September 30, 1999 compared with the first nine months of
1998. In addition to the increase in labor costs noted above,
telecommunication costs increased due to branch networking-related
enhancements, a change in strategy of paying for correspondent banking
analysis charges rather than maintaining non-interest bearing balances
resulted in increased expense and consulting fees increased.
FINANCIAL CONDITION
The following table highlights the changes in the balance sheet. The
analysis uses quarterly averages to give a better indication of balance
sheet trends.
CONDENSED AVERAGE BALANCE SHEETS
(thousands)
3rd Qtr. 2nd Qtr. 1st Qtr.
1999 1999 1999
ASSETS
Interest-earning:
Interest-bearing deposits with banks $ 5,492 5,492 5,465
Federal funds sold 6,550 8,737 9,060
Securities available for sale 113,475 118,650 117,599
Loans 277,658 267,239 264,285
------- ------- --------
Total interest-earning assets 403,175 400,118 396,409
------- ------- --------
Noninterest-earning:
Cash and due from banks 15,154 15,331 14,642
All other assets 17,448 17,245 17,211
Allowance for credit losses (2,003) (2,006) (2,002)
------- ------- --------
Total assets $433,774 430,688 426,260
======= ======= ========
LIABILITIES
Interest bearing:
Interest-bearing deposits $339,048 335,712 333,425
Short-term borrowings 1,072 1,095 484
------- ------- --------
Total interest-bearing liabilities 340,120 336,807 333,909
Noninterest-bearing:
Noninterest-bearing deposits 49,261 49,209 47,460
All other liabilities 1,274 1,558 1,982
------- ------- --------
Total liabilities 390,655 387,574 383,351
SHAREHOLDERS' EQUITY 43,119 43,114 42,909
------- ------- --------
Total liabilities and
shareholders' equity $433,774 430,688 426,260
======= ======= ========
Total average assets increased $3.1 million in the third quarter of 1999
from the second quarter and increased $7.5 million from the first quarter
of 1999. Although total average assets remained relatively stable in the
third quarter, average loans increased $10.4 million primarily due to
continued growth in the commercial loan portfolio. The growth in the
commercial loan portfolio also caused a $7.5 million increase in average
total assets in the third quarter of 1999 when compared to the first
quarter. Average interest-bearing liabilities increased $3.3 million
from the second quarter of 1999 and $6.2 million from
the first quarter. Average noninterest-bearing deposits remained
relatively stable in the third quarter of 1999 when compared to the second
quarter and increased $1.8 million from the first quarter.
REGULATORY CAPITAL
Lebanon Citizens is required by regulators to meet certain minimum levels
of capital adequacy. These are expressed in the form of certain ratios.
Capital is separated into Tier I capital (essentially shareholders'
equity less goodwill and other intangibles) and Tier II capital
(essentially the allowance for loan losses limited to 1.25% of risk-
weighted assets). The first two ratios, which are based on the degree of
credit risk in Lebanon Citizens' assets, provide for weighting assets
based on assigned risk factors and include off-balance sheet items such
as loan commitments and stand-by letters of credit. The ratio of Tier I
capital to risk-weighted assets must be at least 4.0% and the ratio of
Total capital (Tier 1 capital plus Tier 2 capital) to risk-weighted
assets must be at least 8.0%. The capital leverage ratio supplements the
risk-based capital guidelines. Banks are required to maintain a minimum
ratio of Tier 1 capital to adjusted quarterly average total assets of
3.0%. A summary of the regulatory capital and capital ratios of Lebanon
Citizens follows:
At At
September 30, December 31,
1999 1998
Regulatory Capital:
Shareholders' equity $43,369 42,199
Goodwill and other intangibles (4,864) (5,321)
Net unrealized securities (gains)losses 831 (646)
------- -----
Tier 1 risk-based capital 39,336 36,232
Eligible allowance for loan losses 2,005 2,000
------- -----
Total risk-based capital $41,341 38,232
======= ======
Capital Ratios:
Total risk-based 15.3% 15.1%
Tier 1 risk-based 14.6% 14.3%
Leverage 9.2% 8.6%
LIQUIDITY
Liquidity is the ability to have funds available at all times to meet the
commitments of Lebanon Citizens. Asset liquidity is provided by cash and
assets which are readily marketable or pledgeable or which will mature in
the near future. Liquid assets included cash and deposits in banks,
federal funds sold and securities available for sale. Liquidity is also
provided by access to core funding sources, primarily core depositors in
the bank's trade area. Lebanon Citizens does not solicit brokered
deposits as a funding source. The liquidity of Lebanon Citizens is
enhanced by the fact that 85% of total deposits at September 30, 1999
were "core" deposits. Core deposits, for this purpose, are defined as
total deposits less public funds and certificates of deposit greater than
$100,000.
At September 30, 1999, Lebanon Citizens liquid assets amounted to $136.0
million or 31% of total gross assets, down from $143.7 million or 33% at
December 31, 1998. Secondary sources of liquidity include Lebanon
Citizens' ability to sell loan participations and purchase federal funds.
Management closely monitors the level of liquid assets available to meet
ongoing funding needs. It is management's intent to maintain adequate
liquidity so that sufficient funds are readily available at a reasonable
cost. Loans to deposits were 73% and 69%, at September 30, 1999 and
December 31, 1998, respectively. Lebanon Citizens experienced no
liquidity or operational problems as a result of the current liquidity
levels.
YEAR 2000 COMPLIANCE
As discussed in the "Management Discussion and Analysis of Financial
Condition and Results of Operations" section of LCNB Corp.'s Form S-4,
as amended, Lebanon Citizens initiated a company-wide program in April
1997 to address Year 2000 concerns. Lebanon Citizens adopted the Federal
Financial Institutions Examination Council guidelines. This five-step
approach included the following phases: Awareness, Assessment,
Renovation, Validation and Implementation.
Lebanon Citizens has concluded its fourth phase of the program. All
computer operating systems have been tested with no detected errors. The
readiness of its vendors, major customers and other third parties that do
business with Lebanon Citizens have been reviewed with satisfactory
results. Additionally, all non-information technology systems were
examined and none were found to be date sensitive, and therefore are
compliant. A supplementary contingency plan, as a back up, was developed
in 1999 to address procedures to be followed, potential liquidity needs,
etc. in the event of unforeseen issues or problems. Lebanon Citizens is
currently concentrating on educating its customers.
No material costs were incurred through the first nine months of 1999
regarding the Y2K compliance issues and no material costs are expected to
be incurred for the remainder of 1999.
Item 3. Quantitative and Qualitative Disclosures about Market Risks
QUANTITATIVE AND QUALITATIVE DISLCOSURES ABOUT MARKET RISKS
For a discussion of Lebanon Citizens' asset and liability management
policies and gap analysis for the year ended December 31, 1998 see Item
3, Quantitative and Qualitative Disclosures about Market Risks in the
recently filed Form S-4, as amended for the year ended December 31, 1998.
There have been no material changes in Lebanon Citizens' market risks,
which for Lebanon Citizens is primarily interest rate risk.
PART II. OTHER INFORMATION
LCNB Corp. and
Lebanon Citizens National Bank
Item 1. Legal Proceedings - Not Applicable
Item 2. Changes in Securities and Use of Proceeds - Not Applicable
Item 3. Defaults by the Company on its Senior Securities - Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders Not
Applicable
Item 5. Other Information - Not Applicable
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit
No. Description
27 Financial Data Schedule for
the Nine Months Ended
September 30, 1999.
b. LCNB Corp. was not required to file Form 8-K during the quarter
ended September 30, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LCNB Corp.
Registrant
Date: October 29, 1999 /s/Steve P. Foster
--------------------
Steve P. Foster
Vice President
and Chief Financial Officer
<TABLE> <S> <C>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT FOR LCNB CORP. ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30,
1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
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