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, 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 October 30, 2000, was 1,775,942 shares.
<PAGE>
LCNB Corp.
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
September 30, 2000, and December 31, 1999 . . . . . . 1
Consolidated Statements of Income -
Three and Nine Months Ended September 30, 2000
and 1999 2
Consolidated Statements of Comprehensive
Income and Changes in Shareholders' Equity -
Year Ended December 31, 1999 and Nine Months
Ended September 30, 2000 . . . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 2000 and 1999 . . . . 4
Notes to Consolidated Financial Statements . . . . . . 5-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . 8-16
Item 3. Quantitative and Qualitative Disclosures
about Market Risks . . . . . . . . . . . . . . . . . . . . .16
Part II. Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . 17
Item 2. Changes in Securities and Use of Proceeds . . . . . . 17
Item 3. Defaults by the Company on its Senior Securities . . . 17
Item 4. Submission of Matters to a Vote of Security Holders . 17
Item 5. Other Information . . . . . . . . . . . . . . . . . . 17
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . 17
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
<TABLE>
LCNB Corp. and Subsidiaries
Consolidated Balance Sheets
At September 30, 2000, and December 31, 1999
(thousands)
<CAPTION>
September 30, December 31,
2000 1999
(unaudited) (a)
<S> <C> <C>
ASSETS:
Cash and due from banks $ 16,109 18,840
Federal funds sold 10,825 5,300
------- -------
Total cash and cash equivalents 26,934 24,140
Interest-bearing deposits in banks 5,492 5,492
Federal Reserve Bank stock 647 647
Federal Home Loan Bank stock 857 -
Securities available for sale, at
market value 85,826 104,911
Loans 325,218 287,608
Less-allowance for loan losses 2,000 2,000
------- -------
Net loans 323,218 285,608
Premises and equipment, net 10,627 8,231
Intangible assets 4,331 4,763
Accrued income receivable 3,459 3,363
Other assets 1,588 2,083
------- -------
TOTAL ASSETS $462,979 439,238
======= =======
LIABILITIES:
Deposits-
Noninterest-bearing $ 52,890 49,477
Interest-bearing 354,414 342,092
------- -------
Total deposits 407,304 391,569
Accrued interest and other liabilities 10,278 4,982
------- -------
TOTAL LIABILITIES 417,582 396,551
------- -------
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 24,894 22,872
Accumulated other comprehensive
loss, net of taxes (610) (1,298)
------- -------
TOTAL SHAREHOLDERS' EQUITY 45,397 42,687
------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $462,979 439,238
======= =======
<FN>
(a) Financial information as of December 31, 1999, has been derived from the
audited, consolidated financial statements of the Registrant, as restated for
the acquisition of Dakin Insurance Agency, Inc.
</FN>
The accompanying notes to financial statements are an integral part of these
statements.
</TABLE>
-1-
<PAGE>
<TABLE>
LCNB Corp. and Subsidiaries
Consolidated Statements of Income
(In thousands except per share data)
(unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------ ----------------
2000 1999 2000 1999
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $6,733 5,785 19,314 16,843
Interest on federal funds sold 161 83 263 294
Interest on deposits in banks 71 71 215 210
Interest on Federal Reserve and
Federal Home Loan Bank stock 3 - 22 19
Interest on investment securities-
Taxable 833 1,262 2,752 3,802
Non-taxable 382 315 1,197 937
----- ----- ------ ------
TOTAL INTEREST INCOME 8,183 7,516 23,763 22,105
----- ----- ------ ------
INTEREST EXPENSE:
Interest on deposits 4,111 3,328 11,469 9,785
Interest on borrowings 112 17 220 48
----- ----- ------ ------
TOTAL INTEREST EXPENSE 4,223 3,345 11,689 9,833
----- ----- ------ ------
NET INTEREST INCOME 3,960 4,171 12,074 12,272
PROVISION FOR LOAN LOSSES 52 42 134 166
------ ----- ------ ------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 3,908 4,129 11,940 12,106
----- ----- ------ ------
NON-INTEREST INCOME:
Trust income 270 255 830 709
Service charges and fees 517 578 1,537 1,604
Net gain (loss) on sale of
securities - - (13) 23
Insurance agency commissions 217 190 632 769
Other operating income 28 25 90 85
----- ----- ------ ------
TOTAL NON-INTEREST INCOME 1,032 1,048 3,076 3,190
----- ----- ------ ------
NON-INTEREST EXPENSE:
Salaries and wages 1,409 1,443 4,246 4,231
Pension and other employee benefits 339 306 1,080 984
Equipment 169 141 431 394
Occupancy, net 276 224 807 716
State franchise tax 107 157 350 465
Marketing 112 84 297 278
Intangible amortization 129 156 454 463
Other 788 689 2,318 2,118
----- ----- ------ ------
TOTAL NON-INTEREST EXPENSE 3,329 3,200 9,983 9,649
----- ----- ------ ------
INCOME BEFORE INCOME TAXES 1,611 1,977 5,033 5,647
PROVISION FOR INCOME TAXES 468 578 1,413 1,613
----- ----- ------ ------
NET INCOME $1,143 1,399 3,620 4,034
===== ===== ====== ======
Dividends declared per common share $ .30 .25 .90 .75
Basic earnings per common share $ .64 .79 2.04 2.27
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.
</TABLE>
-2-
<PAGE>
<TABLE>
LCNB Corp. and Subsidiaries
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> <C>
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 3,620 3,620 $3,620
Net unrealized gain on
available-for-sale securities
(net of taxes of $350) 679 679 679
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 $4,308
=====
Cash dividends declared (1,598) (1,598)
------ ------ ------ ------ ------
Balance September 30, 2000 $10,560 10,553 24,894 (610) 45,397
====== ====== ====== ====== ======
The accompanying notes to financial statements are an integral part of these statements.
</TABLE>
-3-
<PAGE>
<TABLE>
LCNB Corp. and Subsidiaries
Consolidated Statements of Cash Flows
(thousands)
(unaudited)
<CAPTION>
Nine Months Ended
September 30
-----------------
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,620 4,034
Adjustments for non-cash items -
Depreciation and amortization 1,455 1,541
Provision for loan losses 134 166
Deferred tax benefit (69) (62)
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 in accrued income receivable (96) (261)
Increase (decrease) in accrued interest and
other accrued expenses, net 430 (461)
------ ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,487 4,934
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities available
for sale 21,446 32,320
Proceeds from sales of securities available for sale 3,988 8,175
Purchases of securities available for sale (5,566) (33,638)
Purchases of securities held to maturity (857) -
Net increase in loans (38,048) (14,254)
Purchases of premises and equipment (2,944) (687)
------ ------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (21,981) (8,084)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 15,735 (1,436)
Net increase (decrease) in short-term borrowings (849) 2,283
Net increase in long-term borrowings 6,000 -
Cash dividends paid (1,598) (1,320)
------ ------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 19,288 (473)
------ ------
NET CHANGE IN CASH AND CASH EQUIVALENTS 2,794 (3,623)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 24,140 20,785
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $26,934 17,162
====== ======
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $11,291 9,838
Income taxes paid 1,521 1,934
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.
</TABLE>
-4-
<PAGE>
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 nine months ended September
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-
<PAGE>
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.
<TABLE>
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):
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Dakin Insurance Agency, Inc.
Revenues prior to acquisition $ - 193 182 777
Revenues since acquisition 220 - 458 -
----- ----- ----- -----
$ 220 193 640 777
===== ===== ===== =====
Net income:
Consolidated LCNB Corp. $1,120 1,405 3,569 3,967
Dakin Insurance Agency, Inc. 23 (6) 51 67
----- ----- ----- -----
$1,143 1,399 3,620 4,034
===== ===== ===== =====
Earnings per common share:
As previously reported $ - 0.80 - 2.25
As restated - 0.79 - 2.27
</TABLE>
-6-
<PAGE>
LCNB Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
(Continued)
NOTE 4 - BORROWINGS
<TABLE>
Accrued interest and other liabilities include the following short-term
borrowings and long-term debt (thousands):
<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
U.S. Treasury demand notes $1,424 -
===== =====
Long-Term Debt:
Federal Home Loan Bank notes $6,000 -
Note payable to former shareholder
of Dakin Insurance Agency, Inc. 368 403
----- -----
Total $6,368 403
===== =====
</TABLE>
Maturities of long-term debt in the years ending December 31 are as follows:
2001 $ 50
2002 2,053
2003 56
2004 2,060
2005 2,064
The Federal Home Loan Bank borrowings consist of three notes with two,
four and five-year maturities and have a weighted average interest rate
of 7%. Interest on the notes is payable monthly. The notes are
collateralized by a blanket pledge of certain residential loans.
The note payable matures in 2006. Payments are due monthly at a nominal
interest rate of 6%.
-7-
<PAGE>
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 $1.143 million for the three months ended September 30,
2000 compared to $1.399 million for the three months ended September 30,
1999. Earnings per share were $.64 for the third quarter of 2000, compared
with $.79 per share earned in the third quarter of 1999. Annualized
performance ratios included a return on average assets of 1.00% and a return
on average equity of 10.19%, compared with the same ratios for the third
quarter of 1999 of 1.28% and 12.99%, respectively.
For the first nine months of 2000 LCNB Corp. earned $3.620 million compared
to $4.034 million for the first nine months of 1999. Earnings per share were
$2.04 in 2000, representing a 10.1% decline from the $2.27 per share earned
the same period in 1999. Return on average assets was 1.06% for the first
nine months of 2000 and return on average equity was 11.04% for the same
period. The comparable ratios for the first nine months of 1999 were 1.25%
and 12.62%, respectively.
-8-
<PAGE>
NET INTEREST INCOME
The table below presents net interest income, average balances and average
rates.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
NET INTEREST INCOME (in thousands)
Book basis $ 3,960 4,171 12,074 12,272
Tax equivalent adjustment 135 132 417 319
------- ------- ------- -------
Fully taxable basis $ 4,095 4,303 12,491 12,591
======= ======= ======= =======
AVERAGE BALANCES (in thousands)
Interest-earning assets $423,410 403,175 412,180 399,925
Interest-bearing liabilities 357,485 340,520 346,917 337,219
------- ------- ------- -------
Earning assets financed by
noninterest-bearing funds $ 65,925 62,655 65,263 62,706
======= ======= ======= =======
AVERAGE RATES (fully taxable basis)
Yield on interest-earning assets 7.82% 7.52% 7.84% 7.50%
Cost of interest-bearing
liabilities 4.70 3.90 4.50 3.90
---- ---- ---- ----
Interest rate spread 3.12 3.62 3.34 3.60
Contribution of noninterest-
bearing funds .73 .61 .71 .61
---- ---- ---- ----
Net interest margin 3.85% 4.23% 4.05% 4.21%
==== ==== ==== ====
</TABLE>
-9-
<PAGE>
Net interest income on a fully taxable basis for the third quarter of 2000
totaled $4.095 million, down $208 thousand from the third quarter of 1999.
The $208 thousand decrease in net interest income was primarily due to a 38
basis point decrease in the net interest margin, partially offset by a $20.2
million increase in average earning assets.
Net interest income on a fully taxable basis for the first nine months of
2000 totaled $12.491 million; down $100 thousand from the first nine months
of 1999. The $100 thousand decrease was primarily due to a 16 basis point
decrease in the net interest margin, partially offset by a $12.3 million
increase in average earning assets.
The net interest margin decreased from 4.23% in the third quarter of 1999 to
3.85% in the third quarter of 2000. This 38 basis point decrease was due in
part to an 80 basis point increase in the cost of average interest bearing
liabilities, partially offset by a 30 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 the same general increase in market rates, and to a change in the
portfolio mix from investment securities to higher yielding assets, primarily
commercial, installment and real estate loans.
The net interest margin decreased from 4.21% in the first nine months of 1999
to 4.05% in the first nine months of 2000. This 16 basis point decrease
resulted from a 60 basis point increase in the cost of interest-bearing
liabilities partially offset by a 34 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 $423.4 million for the third quarter
of 2000, up $20.2 million, or 5.02%, 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 nine-month
period ended September 30, 2000 increased by $12.3 million when compared with
the comparable period of 1999, primarily due to loan growth. Average
interest-bearing liabilities totaled $357.5 million for the third quarter of
2000, up $17.0 million from the same period in 1999. Average interest-
bearing liabilities totaled $346.9 million for the nine months ended
September 30, 2000, an increase of $9.7 million from the nine-month period
ended September 30, 1999. The increase in average interest bearing
liabilities was attributable to $6.0 million of Federal Home Loan Bank long-
term notes obtained in June, 2000. The balance was due to increases in
deposit accounts.
-10-
<PAGE>
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.
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
-------------- -----------------
2000 1999 2000 1999
(thousands) (thousands)
<S> <C> <C> <C> <C>
Balance, beginning of period $2,000 2,000 2,000 2,000
----- ----- ----- -----
Charge-offs 63 64 170 204
Recoveries 12 27 36 43
----- ----- ----- -----
Net charge-offs 51 37 134 161
----- ----- ----- -----
Provision for loan losses 51 42 134 166
----- ----- ----- -----
Balance, end of period $2,000 2,005 2,000 2,005
===== ===== ===== =====
</TABLE>
Of the total charge-offs for the nine months ended September 30, 2000, all
$170 thousand is attributable to consumer loans including $27 thousand in
credit cards. For the first nine months of 1999, consumer loans charged off
amounted to $204 thousand.
The following table sets forth information regarding the past-due, non-
accrual and renegotiated loans of the Bank at the dates indicated:
<TABLE>
<CAPTION>
September 30 December 31
2000 1999
------------ -----------
(thousands)
<S> <C> <C>
Loan accounted for on
non-accrual basis $175 -
Accruing loans which are
past due 90 days or more 149 68
Renegotiated loans - -
--- --
Total $324 68
=== ==
</TABLE>
-11-
<PAGE>
The loan accounted for on a non-accrual basis consists of one commercial
loan, which has financially strong guarantors supporting the credit. The
borrowers paid the loan off in October, 2000. The remaining accruing loans
past due 90 days or more consist of real estate and consumer credits.
NON-INTEREST INCOME
Non-interest income of $1.032 million decreased $16 thousand, or 1.5% in the
third quarter of 2000 compared to the third quarter of 1999. Trust income of
$270 thousand increased $15 thousand, or 5.9%, from the third quarter of 1999
due to an increase in estate fees, partially offset by a decrease in the
market value of assets under management on which fees are based. Total
service charges and fees were approximately $61 thousand less than during the
third quarter of 1999. This was primarily due to a $91 thousand reduction in
merchant credit card processing fees resulting from the exiting of the
business in the fourth quarter of 1999, partially offset by increases in bank
card-related fee income and deposit account related fees. Insurance agency
commissions increased $27 thousand, or 14.2%, compared to the third quarter
of 1999.
Non-interest income of $3.076 million in the first nine months of 2000
decreased $114 thousand, or 3.6%, compared with the first nine 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 thousand loss on the sale of securities in 2000
compared with a $23 thousand gain in the comparable nine-month period in
1999. Total service charges and fees declined $67 thousand 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 $129 thousand, or 4.0% in the third
quarter 2000 compared with the third quarter 1999. Salaries and wages
decreased $34 thousand primarily due to decreases in incentive compensation
expense, partially offset by normal increases in salaries and wages. Pension
and other employee benefits increased $33 thousand due to increases in
medical, pension, and Medicare and social security tax matching. Equipment
and occupancy expenses increased $28 thousand and $52 thousand, respectively.
During 2000 LCNB constructed new offices in Goshen and Oxford and extensively
remodeled the Columbus Avenue office in Lebanon. The increase in occupancy
expense reflects increased costs due to the new and remodeled offices and an
increase in rent expense for leased offices. The increase in equipment
expense is primarily due to depreciation recognized on new furniture and
equipment purchased for the new and remodeled offices. Grand opening
celebrations for the Goshen and Columbus Avenue offices and for Dakin
Insurance Co. contributed to the $28 thousand increase in marketing costs.
Other non-interest expenses increased $99 thousand due to increased volumes
of ATM and credit card activity, increased data processing costs, increased
Federal Deposit Insurance Corporation premiums, and costs related to
investigation of data processing software replacement. These increases in
other non-interest expense were partially offset by decreases related to
merchant credit card processing and certain printing and supply expense
control initiatives. Lower state franchise taxes and intangible amortization
partially offset the overall increase in non-interest expenses.
-12-
<PAGE>
Total non-interest expense increased $334 thousand, or 3.5%, in the nine
months ended September 30, 2000 compared with the first nine months of 1999.
Despite the decrease during the third quarter, salaries and wages for the
nine months ended September 30, 2000 were $15 thousand greater than for the
comparable period in 1999 primarily due to normal increases in salaries and
wages. Changes in other items were substantially due to the same factors
described above.
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.
<TABLE>
<CAPTION>
CONDENSED AVERAGE BALANCE SHEETS
(thousands)
3rd Qtr. 2nd Qtr. 1st Qtr.
2000 2000 2000
<S> <C> <C> <C>
ASSETS
Interest-earning:
Interest-bearing deposits with banks $ 5,492 5,492 5,492
Federal funds sold 10,207 2,037 5,023
Securities available for sale 90,598 97,086 103,515
Loans 317,113 304,195 290,168
------- ------- -------
Total interest-earning assets 423,410 408,810 404,198
Noninterest-earning:
Cash and due from banks 14,842 15,389 15,217
All other assets 19,313 18,037 18,467
Allowance for credit losses (2,002) (2,001) (2,002)
------- ------- -------
Total assets $455,563 440,235 435,880
======= ======= =======
LIABILITIES
Interest bearing:
Interest-bearing deposits $350,456 338,446 338,341
Other borrowings 7,029 4,916 1,447
------- ------- -------
Total interest-bearing liabilities 357,485 343,362 339,788
Noninterest-bearing:
Noninterest-bearing deposits 51,703 52,183 51,339
All other liabilities 1,737 1,169 1,789
------- ------- -------
Total liabilities 410,925 396,714 392,916
SHAREHOLDERS' EQUITY 44,638 43,521 42,964
------- ------- -------
Total liabilities and shareholders'
equity $455,563 440,235 435,880
======= ======= =======
</TABLE>
-13-
<PAGE>
Total average assets increased $15.3 million in the third quarter of 2000
from the second quarter and $19.7 million from the first quarter of 2000.
The increase from the second quarter is primarily due to growth in real
estate mortgage, commercial and installment loans and to an increase in the
amount of federal funds sold to other institutions. LCNB Corp. continues to
shift assets into the higher yielding loan portfolio. The increase from the
first quarter of 2000 is due to a $26.9 million, or 9.29%, increase in
average loans and to an increase in federal funds sold.
Additionally, LCNB Corp. expended $2.9 million in additions to premises and
equipment in the nine months ended September 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 increased $12.0 million and $12.1 million
from the second and first quarters of 2000, respectively. LCNB offers a
corporate sweep checking account that automatically sweeps excess funds into
a designated, non-Bank owned mutual fund. During the third quarter, LCNB
introduced a savings product that was priced competitively with the mutual
funds. As a result, several large account holders chose the new deposit
product, which accounts for most of the increase in interest-bearing
deposits. Other borrowings increased $2.1 million in the third quarter from
the second quarter due to $6 million in borrowings with the Federal Home Loan
Bank in June. Average noninterest-bearing deposits decreased $0.5 million
from the second quarter of 2000 and increased $0.4 million from the first
quarter of 2000.
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:
-14-
<PAGE>
<TABLE>
<CAPTION>
At At
September 30, December 31,
2000 1999
<S> <C> <C>
Regulatory Capital:
Shareholders' equity $45,397 42,687
Goodwill and other intangibles (4,331) (4,763)
Net unrealized securities gains 610 1,298
------ ------
Tier 1 risk-based capital 41,676 39,222
Eligible allowance for loan losses 2,000 2,000
------ ------
Total risk-based capital $43,676 41,222
====== ======
Capital Ratios:
Total risk-based 14.8% 15.3%
Tier 1 risk-based 14.1% 14.6%
Leverage 9.2% 9.1%
</TABLE>
-15-
<PAGE>
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 84.8%
of total deposits at September 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 September 30, 2000, Lebanon Citizens liquid assets amounted to $118
million or 25.5% 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 79.8% and 73.5%, at
September 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 nine 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.
-16-
<PAGE>
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
<TABLE>
<CAPTION>
Exhibit
No. Description
<S> <C>
27.1 Financial Data Schedule for
the Nine Months Ended
September 30, 2000.
27.2 Restated Financial Data Schedule for
the Nine Months Ended
September 30, 1999
</TABLE>
b. On September 15, 2000, LCNB Corp. filed a Form 8-K with the
Securities and Exchange Commission reporting the issuance of a
letter containing financial information to its shareholders.
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 30, 2000 /s/Steve P. Foster
--------------------------
Steve P. Foster
Vice President
and Chief Financial Officer
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