Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
Commission File Number 000-26121
LCNB Corp.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
OHIO 31-1626393
- ------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
2 North Broadway, Lebanon, Ohio 45036
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(513) 932-1414
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes X No
The number of shares outstanding of the issuer's common stock, without par
value, as of August 4, 2003, was 1,715,327 shares.
LCNB Corp.
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
June 30, 2003, and December 31, 2002 . . . . . . . . . 1
Consolidated Statements of Income -
Three and Six Months Ended June 30, 2003 and 2002 . . . 2
Consolidated Statements of Comprehensive Income -
Three and Six Months Ended June 30, 2003 and 2002 . . . 3
Consolidated Statements of Shareholders' Equity -
Six Months Ended June 30, 2003 and 2002 . . . . . . . . 4
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2003 and 2002 . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . 6-10
Independent Accountants' Review Report . . . . . . . . 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . 12-23
Item 3. Quantitative and Qualitative Disclosures
about Market Risks . . . . . . . . . . . . . . . . . . . . 24
Item 4. Controls and Procedures . . . . . . . . . . . . . . . . . . 24
Part II. Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . 25
Item 2. Changes in Securities and Use of Proceeds . . . . . . 25
Item 3. Defaults by the Company on its Senior Securities . . . 25
Item 4. Submission of Matters to a Vote of Security Holders. . 25
Item 5. Other Information . . . . . . . . . . . . . . . . . . 25
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . 26
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Part I - Financial Information
Item 1. Financial Statements
LCNB Corp. and Subsidiaries
Consolidated Balance Sheets
(thousands)
June 30, December 31,
2003 2002
(unaudited) (a)
ASSETS:
Cash and due from banks $ 17,228 13,679
Federal funds sold 9,325 11,925
------- -------
Total cash and cash equivalents 26,553 25,604
------- -------
Securities available for sale, at
market value 151,522 136,178
Federal Reserve Bank stock and
Federal Home Loan Bank stock, at cost 2,916 2,871
Loans 320,978 324,832
Less-allowance for loan losses 2,003 2,000
------- -------
Net loans 318,975 322,832
------- -------
Premises and equipment, net 11,861 11,688
Intangible assets 3,030 3,121
Other assets 4,499 4,457
------- -------
TOTAL ASSETS $519,356 506,751
======= =======
LIABILITIES:
Deposits-
Noninterest-bearing $ 62,727 58,921
Interest-bearing 389,234 383,299
------- -------
Total deposits 451,961 442,220
Long-term debt 6,225 6,253
Accrued interest and other liabilities 6,720 6,348
------- -------
TOTAL LIABILITIES 464,906 454,821
------- -------
SHAREHOLDERS' EQUITY:
Common stock-no par value,
authorized 4,000,000 shares; issued
and outstanding 1,775,942 shares 10,560 10,560
Surplus 10,553 10,553
Retained earnings 32,267 30,768
Treasury shares, at cost,
59,415 and 54,917 shares at June 30, 2003
and December 31, 2002, respectively (2,433) (2,193)
Accumulated other comprehensive
income, net of taxes 3,503 2,242
------- -------
TOTAL SHAREHOLDERS' EQUITY 54,450 51,930
------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $519,356 506,751
======= =======
(a) Financial information as of December 31, 2002, has been derived from
the audited, consolidated financial statements of the Registrant.
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
-1-
LCNB Corp. and Subsidiaries
Consolidated Statements of Income
(In thousands except per share data)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
2003 2002 2003 2002
INTEREST INCOME:
Interest and fees on loans $5,539 6,198 11,308 12,426
Dividends on Federal Reserve Bank
and Federal Home Loan Bank stock 42 44 64 68
Interest on investment securities-
Taxable 751 763 1,504 1,415
Non-taxable 530 431 1,063 838
Other short-term investments 52 93 92 188
----- ----- ------ ------
TOTAL INTEREST INCOME 6,914 7,529 14,031 14,935
----- ----- ------ ------
INTEREST EXPENSE:
Interest on deposits 2,260 2,544 4,511 5,060
Interest on short-term borrowings 1 3 3 7
Interest on long-term borrowings 68 174 139 359
----- ----- ------ ------
TOTAL INTEREST EXPENSE 2,329 2,721 4,653 5,426
----- ----- ------ ------
NET INTEREST INCOME 4,585 4,808 9,378 9,509
PROVISION FOR LOAN LOSSES 99 71 217 125
------ ----- ------ ------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 4,486 4,737 9,161 9,384
----- ----- ------ ------
NON-INTEREST INCOME:
Trust income 234 230 489 531
Service charges and fees 702 600 1,339 1,179
Net gain on sale of securities - 12 - 21
Insurance agency income 399 273 760 524
Gains from sales of mortgage loans 275 8 502 34
Other operating income 30 31 65 66
----- ----- ------ ------
TOTAL NON-INTEREST INCOME 1,640 1,154 3,155 2,355
----- ----- ------ ------
NON-INTEREST EXPENSE:
Salaries and wages 1,707 1,624 3,411 3,239
Pension and other employee benefits 412 408 896 885
Equipment expenses 254 159 486 315
Occupancy expense, net 268 265 549 513
State franchise tax 146 131 263 272
Marketing 53 117 160 200
Intangible amortization 152 152 302 301
ATM expense 74 114 143 214
Other non-interest expenses 809 726 1,600 1,480
----- ----- ------ ------
TOTAL NON-INTEREST EXPENSE 3,875 3,696 7,810 7,419
----- ----- ------ ------
INCOME BEFORE INCOME TAXES 2,251 2,195 4,506 4,320
PROVISION FOR INCOME TAXES 553 619 1,202 1,218
----- ----- ------ ------
NET INCOME $1,698 1,576 3,304 3,102
===== ===== ====== ======
Dividends declared per common share $0.525 0.50 1.05 1.00
Earnings per common share:
Basic $ 0.99 0.92 1.92 1.80
Diluted 0.99 0.92 1.92 1.80
Average shares outstanding (000's):
Basic 1,719 1,721 1,720 1,727
Diluted 1,719 1,721 1,720 1,727
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
-2-
LCNB Corp. and Subsidiaries
Consolidated Statements of Comprehensive Income
(In thousands except per share data)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
2003 2002 2003 2002
Net income 1,698 1,576 3,304 3,102
Other comprehensive income:
Net unrealized gain on
available-for-sale securities
(net of taxes of $388, $593,
$649, and $494 for the
respective periods) 754 1,152 1,261 959
Reclassification adjustment for
net realized gain on sale of
available-for-sale securities
included in net income (net of
taxes of $4 and $7 for the three
and six months ended June 30, 2002 - (8) - (14)
----- ----- ----- -----
Total comprehensive income 2,452 2,720 4,565 4,047
===== ===== ===== =====
-3-
LCNB Corp. and Subsidiaries
Consolidated Statements of Shareholders' Equity
(thousands)
(unaudited)
Accumulated
Other Total
Common Retained Treasury Comprehensive Shareholders'
Shares Surplus Earnings Shares Income Equity
Balance January 1,2002 $10,560 10,553 27,714 (516) 1,196 49,507
Net income 3,102 3,102
Change in estimated fair value
of securities available-for-
sale, net of tax and
reclassification adjustment 945 945
Treasury shares purchased (1,677) (1,677)
Cash dividends declared -
$1.00 per share (1,721) (1,721)
------ ------ ------ ------ ------ ------
Balance June 30, 2002 $10,560 10,553 29,095 (2,193) 2,141 50,156
====== ====== ====== ====== ====== ======
Balance January 1,2003 $10,560 10,553 30,768 (2,193) 2,242 51,930
Net income 3,304 3,304
Change in estimated fair value
of securities available-for-
sale, net of tax and
reclassification adjustment 1,261 1,261
Treasury shares purchased (240) (240)
Cash dividends declared -
$1.05 per share (1,805) (1,805)
------ ------ ------ ------ ------ ------
Balance June 30, 2003 $10,560 10,553 32,267 (2,433) 3,503 54,450
====== ====== ====== ====== ====== ======
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
-4-
LCNB Corp. and Subsidiaries
Consolidated Statements of Cash Flows
(thousands)
(unaudited)
Six Months Ended
June 30,
------------------
2003 2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,304 3,102
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization, and accretion 1,548 1,303
Provision for loan losses 217 125
Deferred income tax benefit 207 (117)
Realized gain on sales of securities
available for sale - (21)
Origination of mortgage loans for sale (22,115) (2,806)
Proceeds from sales of mortgage loans 22,398 2,827
(Increase) decrease in income receivable 169 (85)
(Increase) decrease in other assets (758) (188)
Increase (decrease) in other liabilities (215) (835)
------ ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,755 3,305
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale - 8,075
Proceeds from maturities of securities available
for sale 23,553 9,426
Purchases of securities available for sale (37,639) (32,271)
Net decrease (increase) in loans 3,551 (3,429)
Purchases of premises and equipment (670) (603)
------ ------
NET CASH USED IN INVESTING ACTIVITIES (11,205) (18,802)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits 9,741 18,615
Net change in short-term borrowings (269) 456
Principal payments on long-term debt (28) (2,026)
Cash dividends paid (1,805) (1,721)
Purchases of treasury shares (240) (1,677)
------ ------
NET CASH PROVIDED BY FINANCING ACTIVITIES 7,399 13,647
------ ------
NET CHANGE IN CASH AND CASH EQUIVALENTS 949 (1,850)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 25,604 34,236
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $26,553 32,386
====== ======
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 4,625 5,691
Income taxes paid 1,195 1,388
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
-5-
LCNB Corp. and Subsidiaries
Notes to the Consolidated Financial Statements
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
Substantially all of the assets, liabilities and operations of LCNB Corp.
("LCNB") are attributable to its wholly owned subsidiaries, Lebanon Citizens
National Bank ("Lebanon Citizens") and Dakin Insurance Agency, Inc.
("Dakin"). The accompanying unaudited consolidated financial statements
include the accounts of LCNB, Lebanon Citizens, and Dakin.
The statements have been prepared in accordance with U.S. generally accepted
accounting principles for interim financial information and the instructions
to Form 10-Q. Accordingly, they do not include all of the information and
footnotes required by U.S. generally accepted accounting principles for
complete financial statements. In the opinion of management, the unaudited
consolidated financial statements include all adjustments (consisting of
normal, recurring accruals) considered necessary for a fair presentation of
financial position, results of operations and cash flows for the interim
periods.
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Results of operations for the three and six months ended June 30, 2003
are not necessarily indicative of the results to be expected for the full
year ending December 31, 2003. These unaudited consolidated financial
statements should be read in conjunction with the consolidated financial
statements, accounting policies and financial notes thereto included in
LCNB's 2002 Form 10-K filed with the Securities and Exchange Commission.
The financial information presented on pages one through ten of this
Form 10-Q has been subject to a review by J.D. Cloud & Co., L.L.P., LCNB's
independent certified public accountants, as described in their report on
page 11.
NOTE 2 - EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income by the weighted
average number of common shares outstanding during the period. Diluted
earnings per share is adjusted for the dilutive effects of stock options.
The diluted average number of common shares outstanding has been increased
for the assumed exercise of stock options with proceeds used to purchase
treasury shares at the average market price for the period.
-6-
LCNB Corp. and Subsidiaries
Notes to the Consolidated Financial Statements
(Unaudited)
(Continued)
NOTE 3 - INVESTMENT SECURITIES
Available-for-sale investment securities, recorded at estimated market value,
consist of the following (thousands):
June 30, December 31,
2003 2002
-------- -----------
U.S. Treasury notes $ - 1,019
U.S. Agency notes 55,458 47,089
U.S. Agency mortgage-backed securities 21,818 19,052
Municipal securities:
Non-taxable 60,875 56,856
Taxable 13,371 12,162
------- -------
$151,522 136,178
======= =======
NOTE 4 - LOANS
Major classifications of loans at June 30, 2003 and December 31, 2002 are
as follows (thousands):
June 30, December 31,
2003 2002
-------- -----------
Commercial and industrial $ 33,778 35,198
Commercial, secured by real estate 93,794 80,882
Residential real estate 139,066 151,502
Consumer, excluding credit card 48,571 51,184
Agricultural 1,584 1,314
Credit card 2,566 2,689
Other loans 62 57
Lease financing 903 1,256
------- -------
320,324 324,082
Deferred net origination costs 654 750
------- -------
320,978 324,832
Allowance for loan losses (2,003) (2,000)
------- -------
Loans - net $318,975 322,832
======= =======
-7-
LCNB Corp. and Subsidiaries
Notes to the Consolidated Financial Statements
(Unaudited)
(Continued)
NOTE 4 - LOANS (continued)
Mortgage loans sold to and serviced for the Federal Home Loan Mortgage
Corporation ("FHLMC") are not included in the accompanying balance sheets.
The unpaid principal balances of those loans at June 30, 2003 and December
31, 2002 were $50,325,000 and $36,592,000, respectively. Loans sold to the
FHLMC during the three and six months ended June 30, 2003 totaled $12,390,000
and $22,115,000, respectively, and $534,000 and $2,806,000 during the three
and six months ended June 30, 2002, respectively.
Mortgage servicing rights on originated mortgage loans that have been sold
are capitalized by allocating the total cost of the loans between mortgage
servicing rights and the loans based on their relative fair values.
Approximately $124,000 and $220,000 in mortgage servicing rights were
capitalized during the three and six months ended June 30, 2003, respectively,
and are being amortized to loan servicing income in proportion to and over
the period of estimated servicing income.
Changes in the allowance for loan losses were as follows (thousands):
June 30, June 30,
2003 2002
--------- ---------
Balance - beginning of year $2,000 2,000
Provision for loan losses 217 125
Charge-offs (248) (146)
Recoveries 34 21
----- -----
Balance - end of period $2,003 2,000
===== =====
Charge-offs for the six months ended June 30, 2003 and 2002, consisted of
consumer and credit card loans. There were no charge-offs on residential
real estate or commercial loans for either period.
There was one nonaccrual loan with a balance of $32,000 at June 30, 2003.
This loan was secured by a second mortgage on 1-4 family residential
property. There were no nonaccrual loans at December 31, 2002. At June 30,
2003 and December 31, 2002, loans past due 90 days or more and still accruing
were $439,000 and $232,000, respectively.
NOTE 5 - COMMITMENTS AND CONTINGENT LIABILITIES
LCNB is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers.
These financial instruments included commitments to extend credit. They
involve, to varying degrees, elements of credit and interest rate risk in
excess of the amount recognized in the balance sheets. Exposure to credit
loss in the event of nonperformance by the other parties to financial
instruments for commitments to extend credit is represented by the contract
amount of those instruments.
-8-
LCNB Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
(Continued)
NOTE 5 - COMMITMENTS AND CONTINGENT LIABILITIES (continued)
LCNB uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments. Financial
instruments whose contract amounts represent off-balance-sheet credit risk
at June 30, 2003 and December 31, 2002 were as follows (thousands):
June 30, December 31,
2003 2002
--------- ---------
Commitments to extend credit $74,182 69,521
Standby letters of credit 6,677 6,938
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses. Standby letters of credit are conditional commitments issued to
guarantee the performance of a customer to a third party. At June 30, 2003
and December 31, 2002, outstanding guarantees of $1,787,000 and $2,048,000,
respectively, were issued to developers and contractors. These guarantees
generally expire within one year and are fully secured. In addition, LCNB
has an approximate $5 million participation at June 30, 2003 and December 31,
2002 in a letter of credit securing payment of principal and interest on a
bond issue. This letter of credit will expire July 15, 2006, and is secured
by an assignment of rents and the underlying real property.
LCNB evaluates each customer's credit worthiness on a case-by-case basis.
The amount of collateral obtained, if deemed necessary, is based on
management's credit evaluation of the borrower. Collateral held varies, but
may include accounts receivable; inventory; property, plant and equipment;
residential realty; and income-producing commercial properties.
LCNB and its subsidiaries are parties to various claims and proceedings
arising in the normal course of business. Management, after consultation
with legal counsel, believes that the liabilities, if any, arising from such
proceedings and claims will not be material to the consolidated financial
position or results of operations.
NOTE 6 - STOCK OPTIONS
LCNB established an Ownership Incentive Plan (the "Plan") during 2002 that
allows for stock-based awards to eligible employees. The awards may be in
the form of stock options, share awards, and/or appreciation rights. The
Plan provides for the issuance of up to 50,000 shares. No awards were
granted during 2002. Stock options for 2,764 shares were granted to key
executive officers of LCNB during the first quarter, 2003.
-9-
LCNB Corp. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
(Continued)
NOTE 6 - STOCK OPTIONS (continued)
LCNB accounts for the Plan under the recognition and measurement principles
of Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock
Issued to Employees, and related Interpretations. No stock-based employee
compensation cost is reflected in net income, as all options granted had an
exercise price equal to the market value of the underlying common stock on
the date of grant. The pro-forma effect on net income and earnings per share
if LCNB had applied the fair value recognition provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based
Compensation, to stock-based employee compensation was not material. Because
this is the first year stock options were outstanding, this year's pro-
forma effect is not indicative of the pro-forma effect on future quarters and
years.
NOTE 7 - ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 149, Amendment of
Statement 133 on Derivative Instruments and Hedging Activities, was issued in
April, 2003. It amends and clarifies financial accounting and reporting for
derivitive instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities accounted for under SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. LCNB does not
currently hold any security investments of the types covered by this SFAS and
is therefore not affected by its provisions.
SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity, was issued in May, 2003, and
establishes new accounting standards for classification and measurement of
certain financial instruments with characteristics of both assets and
liabilities. Many of the instruments covered by the scope of SFAS No. 150
were previously classified as equity; SFAS No. 150 requires that they be
classified as liabilities or, in certain circumstances, as assets. LCNB does
not currently hold any security investments with such characteristics and
SFAS No. 150 therefore has no effect on LCNB Corp.'s financial statements.
-10-
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Board of Directors and Shareholders
LCNB Corp. and subsidiaries
Lebanon, Ohio
We have reviewed the accompanying consolidated balance sheet of LCNB Corp.
and subsidiaries as of June 30, 2003, and the related consolidated statements
of income and comprehensive income for each of the three-month and six-month
periods ended June 30, 2003 and 2002, and the related consolidated statements
of cash flows and shareholders' equity for each of the six-month periods
ended June 30, 2003 and 2002. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with U.S. generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying consolidated interim financial statements
for them to be in conformity with U.S. generally accepted accounting
principles.
We previously audited, in accordance with U.S. generally accepted auditing
standards, the consolidated balance sheet of LCNB Corp. and subsidiaries as
of December 31, 2002 (presented herein), and the related consolidated
statements of income, shareholders' equity, and cash flows for the year then
ended (not presented herein), and in our report dated January 24, 2003, we
expressed an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying consolidated
balance sheet as of December 31, 2002, is fairly stated in all material
respects.
/s/ J.D. Cloud & Co. L.L.P.
Cincinnati, Ohio
July 31, 2003
-11-
LCNB Corp. and Subsidiaries
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
FORWARD-LOOKING STATEMENTS
Certain matters disclosed herein may be deemed to be forward-looking
statements that involve risks and uncertainties, including regulatory policy
changes, interest rate fluctuations, loan demand, loan delinquencies and
losses, and other risks. Actual strategies and results in future time
periods may differ materially from those currently expected. Such forward-
looking statements represent management's judgment as of the current date.
The Company disclaims, however, any intent or obligation to update such
forward-looking statements.
RESULTS OF OPERATIONS
LCNB earned $1,698,000, or $0.99 per share, for the three months ended
June 30, 2003 compared to $1,576,000, or $0.92 per share, for the three
months ended June 30, 2002. The return on average assets (ROAA) was 1.32%
and the return on average equity (ROAE) was 12.69% for the second quarter of
2002, compared with an ROAA of 1.29% and an ROAE of 12.73% for the second
quarter of 2002.
LCNB earned $3,304,000, or $1.92 per share, during the first six months of
2003 compared to $3,102,000, or $1.80 per share, for the first six months
of 2002. The ROAA and ROAE for the first six months of 2002 were 1.30% and
12.53%, respectively. The comparable ratios for the first six months of 2002
were 1.29% and 12.66%, respectively.
NET INTEREST INCOME
LCNB's primary source of earnings is net interest income, which is the
difference between earnings from loans and other investments and interest
paid on deposits and other liabilities. The following table presents, for
the three and six months ended June 30, 2003 and 2002, average balances for
interest-earning assets and interest-bearing liabilities, the income or
expense related to each item, and the resultant average yields earned or
rates paid.
-12-
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
2003 2002 2003 2002
(Dollars in thousands)
Interest-earning Assets:
Average balance (1) $486,222 460,138 481,511 454,112
Interest income (2) 7,191 7,760 14,588 15,382
Average rate 5.93% 6.76% 6.11% 6.83%
Interest-bearing Liabilities:
Average balance 396,807 381,529 393,848 376,205
Interest expense 2,329 2,721 4,653 5,426
Average rate 2.35% 2.86% 2.38% 2.91%
Net interest income 4,862 5,039 9,935 9,956
Net interest margin on a
taxable equivalent basis (3) 4.01% 4.39% 4.16% 4.42%
(1) Includes nonaccrual loans, if any.
(2) Income from tax-exempt securities and loans is included in interest
income on a taxable basis. Interest income has been divided by a
factor comprised of the complement of the incremental tax rate of 34%.
(3) The net interest margin is the taxable-equivalent net interest income
divided by average interest-earning assets.
THREE MONTHS ENDED JUNE 30, 2003 VS. 2002. The following table presents the
changes in taxable-equivalent basis interest income and expense for each
major category of interest-earning assets and interest-bearing liabilities
and the amount of change attributable to volume and rate changes for the
three months ended June 30, 2003 as compared to the comparable period in
2002. Changes not solely attributable to rate or volume have been allocated
to volume and rate changes in proportion to the relationship of absolute
dollar amounts of the changes in each.
-13-
Three Months Ended
June 30,
2003 vs 2002
--------------------------
Increase (decrease) due to:
Volume Rate Total
(In thousands)
Interest-earning Assets
Loans $(112) (552) (664)
Federal funds sold (14) (27) (41)
Federal Reserve Bank stock - - -
Federal Home Loan Bank stock 1 (3) (2)
Investment securities
Taxable 208 (220) (12)
Nontaxable 213 (63) 150
--- --- ---
Total interest income 296 (865) (569)
Interest-bearing Liabilities
Deposits 136 (420) (284)
Short-term borrowings 1 (3) (2)
Long-term debt (67) (39) (106)
--- --- ---
Total interest expense 70 (462) (392)
--- --- ---
Net interest income $ 226 (403) (177)
=== === ===
Net interest income on a fully tax equivalent basis for the three months
ended June 30, 2003 totaled $4,862,000, a decrease of $177,000 from the
comparable period in 2002. Total interest income decreased $569,000 and was
partially offset by a decrease in total interest expense of $392,000. The
decreases in both interest income and expense were primarily a result of
decreases in the average rate earned on loans and investments and the average
rate paid for deposits and borrowings.
The net interest margin (net interest income divided by average total earning
assets) is a measure of the revenue generated by a financial institution's
earning assets, after deducting interest expense. The net interest margin
for the second quarter of 2003 was 4.01%, as compared to 4.39% for the second
quarter, 2002. The net interest margin and net interest income decreased due
to rates paid for deposits and other borrowings decreasing less rapidly than
rates earned on loans and other investments.
-14-
The decrease in total interest income was primarily due to an 83 basis point
reduction in the average rate earned on earning assets, from 6.76% for the
second quarter of 2002 to 5.93% for the second quarter of 2003. This
decrease was partially offset by a $26.1 million increase in average total
earning assets. Average investment securities increased $35.9 million,
partially offset by a $6.0 million decrease in average loans and a $3.9
million decrease in average federal funds sold. Average loans decreased
primarily because of payoffs from loan refinances and sales of new fixed-rate
residential loans to the Federal Home Loan Mortgage Corporation. Federal
funds decreased because funds were invested in higher-yielding investment
securities.
The decrease in total interest expense was due to a 51 basis point decrease
in the average rate paid, slightly offset by a $15.3 million increase in
average interest-bearing liabilities. Average interest-bearing deposits
increased $20.5 million, while average long-term debt decreased $5.4 million.
The deposit increase was primarily in regular savings and NOW account
products, which increased $27.7 million on an average basis. IRAs and
certificates of deposit decreased $7.2 million on an average basis when
comparing the same periods. Management believes this is reflective of
customer preference for highly liquid, short-term investment products during
the current rate cycle. The decrease in long-term debt is due to the
maturation of a $2.0 million Federal Home Loan Bank advance in June, 2002,
and the early payoff of two other advances totaling $4.0 million during
August, 2002.
SIX MONTHS ENDED JUNE 30, 2002 VS. 2001. The following table presents the
changes in taxable-equivalent basis interest income and expense for each
major category of interest-earning assets and interest-bearing liabilities
and the amount of change attributable to volume and rate changes for the six
months ended June 30, 2003 as compared to the comparable period in 2002.
Six Months Ended
June 30,
2003 vs 2002
--------------------------
Increase (decrease) due to:
Volume Rate Total
(In thousands)
Interest-earning Assets
Loans $ (76) (1,048) (1,124)
Federal funds sold (49) (47) (96)
Federal Home Loan Bank stock 2 (6) (4)
Investment securities
Taxable 418 (329) 89
Nontaxable 448 (107) 341
--- ----- -----
Total interest income 743 (1,537) (794)
Interest-bearing Liabilities
Deposits 313 (862) (549)
Short-term borrowings (1) (3) (4)
Long-term debt (143) (77) (220)
---- ----- -----
Total interest expense 169 (942) (773)
---- ----- -----
Net interest income $ 574 (595) (21)
==== ===== =====
-15-
Net interest income on a fully tax-equivalent basis for the first half of
2003 totaled $9,935,000, a decrease of $21,000 from the first half of 2002.
Total interest income decreased $794,000 and was partially offset by a
decrease in total interest expense of $773,000.
The decrease in total interest income was primarily due to a 72 basis point
decrease in the average rate earned on earning assets, from 6.83% for the
first half of 2002 to 6.11% for the first half of 2003. This decrease was
partially offset by a $27.4 million increase in average total earning assets.
Average investment securities increased $36.6 million, partially offset by a
$2.0 million decrease in average loans and a $7.3 million decrease in average
federal funds sold. Average loans and average federal funds sold decreased
for the same reasons discussed previously in the "THREE MONTHS ENDED JUNE 30,
2003 VS. 2002" section.
The decrease in total interest expense was due to a 53 basis point decrease
in the average rate paid, slightly offset by a $17.6 million increase in
average interest-bearing liabilities. Average interest-bearing deposits
increased $23.6 million and average long-term debt decreased $5.7 million for
substantially the same reasons discussed in the previous section.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The total provision for loan losses is determined based upon management's
evaluation as to the amount needed to maintain the allowance for credit
losses at a level considered appropriate in relation to the risk of losses
inherent in the portfolio. The total loan loss provision and the other
changes in the allowance for loan losses are shown below.
Quarter Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
(In thousands)
Balance, beginning of period $2,000 2,000 2,000 2,000
----- ----- ----- -----
Charge-offs 110 78 248 146
Recoveries 14 7 34 21
----- ----- ----- -----
Net charge-offs 96 71 214 125
----- ----- ----- -----
Provision for loan losses 99 71 217 125
----- ----- ----- -----
Balance, end of period $2,003 2,000 2,003 2,000
===== ===== ===== =====
Charge-offs for the first half of 2003 and 2002 are attributable to consumer
loans, including $14,000 and $23,000 in credit card charge-offs for the six
months ended June 30, 2003 and 2002, respectively.
-16-
The following table sets forth information regarding the past due, non-
accrual and renegotiated loans of the Bank at the dates indicated:
June 30, December 31,
2003 2002
-------- -----------
(In thousands)
Loan accounted for on
non-accrual basis $ 32 -
Accruing loans which are
past due 90 days or more 439 232
Renegotiated loans - -
--- ---
Total $471 232
=== ===
The non-accrual loan at June 30, 2003, was secured by a second mortgage on 1-
4 family residential property.
Approximately $108,000 of the increase in accruing loans which are past due
90 days or more consists of a loan secured by agricultural land. Installment
loans and loans secured by second mortgages on 1-4 family residential
properties comprise the remaining balance of the increase.
NON-INTEREST INCOME
THREE MONTHS ENDED JUNE 30, 2003 VS. 2002. Total non-interest income for the
second quarter of 2003 was $486,000 or 42.1% greater than for the second
quarter of 2002 primarily due to increased activity in the real estate
mortgage loan secondary market, increased commissions received by Dakin
Insurance Agency, and increased service charges and fees on deposit accounts.
Gains from sales of mortgage loans increased $267,000 due to an increase in
the volume of loans sold during the second quarter, 2003 as compared to the
second quarter, 2002. Insurance agency income increased $126,000 or 46.2%
due to commissions received on new and renewing policies. Service charges
and fees increased $102,000 or 17.0% primarily due to adjustments in rates
charged on non-sufficient funds and to an increase in the number of non-
sufficient fund charges.
SIX MONTHS ENDED JUNE 30, 2003 VS. 2002. Total non-interest income for the
first six months of 2003 was $800,000 or 34.0% more than for the comparable
period in 2002 due to a $468,000 increase in gains from sales of mortgage
loans, a $236,000 or 45.0% increase in insurance agency commissions, and a
$160,000 or 13.6% increase in service charges and fees. Gains from sales of
mortgage loans and service charges and fees increased for substantially the
same reason mentioned above. In addition to commissions received on new and
renewing policies, the increase in insurance agency income for the six month
period includes a $55,000 increase in contingency commissions recognized
during the first quarter. Contingency commissions are profit sharing
arrangements on property and casualty policies between the originating agency
and the underwriter and are generally based on underwriting results and
written premium. As such, the amount received each year can vary
significantly depending on loss experience.
-17-
NON-INTEREST EXPENSE
THREE MONTHS ENDED JUNE 30, 2003 VS. 2002. Total non-interest expense
increased $179,000 or 4.8% during the second quarter, 2003 compared with the
second quarter, 2002 primarily due to increases in salaries and wages,
equipment expenses, and other non-interest expenses. Partially offsetting
these increases were decreases in marketing and ATM expenses. Salaries and
wages increased $83,000 or 5.1% primarily due to routine salary and wage
increases. Equipment expenses increased $95,000 or 59.7% primarily due to
rental costs for a new phone system installed during 2002 and to depreciation
charges on new furniture, computer hardware, and computer software purchased
during the second half of 2002 and the first half of 2003. Other non-
interest expenses increased $83,000 or 11.4% due primarily to legal and other
professional expenses. ATM expense decreased $40,000 or 35.1% primarily due
to a change in the ATM transaction processor.
SIX MONTHS ENDED JUNE 30, 2003 VS. 2002. Total non-interest expense
increased $391,000 or 5.3% during the first half, 2003 compared with the
first half of 2002 primarily due to a $172,000 or 5.3% increase in salaries
and wages, a $171,000 or 54.3% increase in equipment expenses, and a $120,000
or 8.1% increase in other non-interest expenses. These increases were
partially offset by a $40,000 or 20.0% decrease in marketing expenses and a
$71,000 or 33.2% decrease in ATM expense. All increases and decreases were
for substantially the same reasons described in the second quarter comparison
above.
-18-
FINANCIAL CONDITION
The following table highlights the changes in the balance sheet. The analysis
uses quarterly averages to give a better indication of balance sheet trends.
CONDENSED QUARTERLY AVERAGE BALANCE SHEETS
------------------------------------------
June 30, March 31, December 31,
2003 2003 2002
(In thousands)
ASSETS
Interest-earning:
Federal funds sold $ 18,415 14,246 21,877
Investment securities 147,450 137,834 130,460
Loans 320,357 324,666 328,505
------- ------- -------
Total interest-earning assets 486,222 476,746 480,842
Noninterest-earning:
Cash and due from banks 13,441 14,065 13,992
All other assets 19,233 19,058 19,163
Allowance for credit losses (2,004) (2,005) (2,001)
------- ------- -------
Total assets $516,892 507,864 511,996
======= ======= =======
LIABILITIES
Interest-bearing:
Interest-bearing deposits $389,951 383,986 389,117
Short-term borrowings 623 624 1,089
Long-term debt 6,233 6,246 6,260
------- ------- -------
Total interest-bearing liabilities 396,807 390,856 396,466
Noninterest-bearing:
Noninterest-bearing deposits 63,004 61,194 60,457
All other liabilities 3,397 3,141 3,443
------- ------- -------
Total liabilities 463,208 455,191 460,366
SHAREHOLDERS' EQUITY 53,684 52,673 51,630
------- ------- -------
Total liabilities and shareholders'
equity $516,892 507,864 511,996
======= ======= =======
-19-
Average total interest-earning assets increased approximately $9.5 million or
2.0% during the second quarter, 2003 compared to the first quarter, 2003.
The growth was in investment securities, which increased $9.6 million or 7.0%
on an average basis, and in federal funds sold, which increased $4.2 million
or 29.3% on an average basis. Average loans partially offset these increases
with a decrease of $4.3 million or 1.3%. The decrease in average loans was
primarily due to the real estate loan portfolio, which decreased $9.0 million
on an average basis. The decrease was due to payoffs on loans refinanced
combined with an historically high volume of loans originated and sold.
Partially offsetting the real estate loan decrease was a $4.8 million
increase in average commercial loans. With limited opportunities to invest
deposit growth in the loan portfolio, management purchased additional
investment securities available for sale, which can readily be sold if the
funds should be needed for future loan growth.
Total average interest-bearing liabilities for the second quarter, 2003, were
$6.0 million or 1.5% greater than for the first quarter, 2003. The growth
was in interest-bearing deposits, which increased $6.0 million on an average
basis - highly liquid savings and NOW account products increased $9.5 million
on an average basis and certificates of deposit and IRA accounts decreased by
$3.5 million on an average basis. Management believes the growth in the
liquid products reflects investor preference for short-term, highly liquid
investments during the current economic cycle. This means much of the recent
savings deposit growth could be quickly withdrawn if interest rates increase.
Management is attempting to lock in a portion of these funds by offering
special rates and terms on selected certificate of deposit products.
-20-
CAPITAL
Lebanon Citizens and LCNB are required by regulators to meet certain
minimum levels of capital adequacy. These are expressed in the form of
certain ratios. Capital is separated into Tier 1 capital (essentially
shareholders' equity less goodwill and other intangibles) and Tier 2 capital
(essentially the allowance for loan losses limited to 1.25% of risk-weighted
assets). The first two ratios, which are based on the degree of credit risk
in LCNB's assets, provide for weighting assets based on assigned risk factors
and include off-balance sheet items such as loan commitments and stand-by
letters of credit. The ratio of Tier 1 capital to risk-weighted assets must
be at least 4.0% and the ratio of Total capital (Tier 1 capital plus Tier 2
capital) to risk-weighted assets must be at least 8.0%. The capital leverage
ratio supplements the risk-based capital guidelines. Banks are required to
maintain a minimum ratio of Tier 1 capital to adjusted quarterly average
total assets of 3.0%. For various regulatory purposes, financial institutions
are classified into categories based upon capital adequacy. The highest
"well-capitalized" category requires capital ratios of at least 10% for total
risk-based, 6% for Tier 1 risk-based, and 5% for leverage. As of the most
recent notification from their regulators, Lebanon Citizens and LCNB were
categorized as "well-capitalized" under the regulatory framework for prompt
corrective action. Management believes that no conditions or events have
occurred since the last notification that would change the Lebanon Citizens'
or LCNB's category. A summary of the regulatory capital and capital ratios
of LCNB follows:
At At
June 30, December 31,
2003 2002
(Dollars in thousands)
Regulatory Capital:
Shareholders' equity $54,450 51,930
Goodwill and other intangibles (2,839) (3,121)
Net unrealized securities gains (3,503) (2,242)
------ ------
Tier 1 risk-based capital 48,108 46,567
Eligible allowance for loan losses 2,003 2,000
------ ------
Total risk-based capital $50,111 48,567
======= ======
Capital Ratios:
Total risk-based 15.42% 15.36%
Tier 1 risk-based 14.80% 14.73%
Leverage 9.43% 9.21%
Minimum Required Capital Ratios:
Total risk-based 8.00% 8.00%
Tier 1 risk-based 4.00% 4.00%
Tier 1 leverage 3.00% 3.00%
-21-
On April 17, 2001, LCNB's Board of Directors authorized three separate stock
repurchase programs, two phases of which continue. The shares purchased will
be held for future corporate purposes.
Under the "Market Repurchase Program" LCNB will purchase up to 50,000 shares
of its stock through market transactions with a selected stockbroker.
Through June 30, 2003, 12,063 shares had been purchased under this program.
The "Private Sale Repurchase Program" is available to shareholders who wish
to sell large blocks of stock at one time. Because LCNB's stock is not
widely traded, a shareholder releasing large blocks may not be able to
readily sell all shares through normal procedures. Purchases of blocks will
be considered on a case-by-case basis and will be made at prevailing market
prices. A total of 46,897 shares had been purchased under this program at
June 30, 2003.
LIQUIDITY
LCNB depends on dividends from its subsidiaries for the majority of its
liquid assets, including the cash needed to pay dividends to its
shareholders. National banking law limits the amount of dividends Lebanon
Citizens may pay to the sum of retained net income, as defined, for the
current year plus retained net income for the previous two years. Prior
approval from the Office of the Comptroller of the Currency, Lebanon
Citizens' primary regulator, would be necessary for Lebanon Citizens to pay
dividends in excess of this amount. In addition, dividend payments may not
reduce capital levels below minimum regulatory guidelines. Management
believes Lebanon Citizens will be able to pay anticipated dividends to LCNB
without needing to request approval.
Liquidity is the ability to have funds available at all times to meet the
commitments of LCNB. Asset liquidity is provided by cash and assets which
are readily marketable or pledgeable or which will mature in the near future.
Liquid assets include cash, federal funds sold and securities available for
sale. At June 30, 2003, LCNB liquid assets amounted to $178.1 million or
34.3% of total gross assets, an increase from $161.8 million or 31.9% at
December 31, 2002.
Liquidity is also provided by access to core funding sources, primarily core
depositors in the bank's trade area. Approximately 90.7% of total deposits
at June 30, 2003 were "core" deposits. Core deposits, for this purpose, are
defined as total deposits less public funds and certificates of deposit
greater than $100,000.
Secondary sources of liquidity include LCNB's ability to sell loan
participations, borrow funds from the Federal Home Loan Bank, and purchase
federal funds. Management closely monitors the level of liquid assets
available to meet ongoing funding needs. It is management's intent to
maintain adequate liquidity so that sufficient funds are readily available at
a reasonable cost. LCNB experienced no liquidity or operational problems as
a result of the current liquidity levels.
-22-
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 149, Amendment of
Statement 133 on Derivative Instruments and Hedging Activities, was issued in
April, 2003. It amends and clarifies financial accounting and reporting for
derivitive instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities accounted for under SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. LCNB does not
currently hold any security investments of the types covered by this SFAS and
is therefore not affected by its provisions.
SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity, was issued in May, 2003, and
establishes new accounting standards for classification and measurement of
certain financial instruments with characteristics of both assets and
liabilities. Many of the instruments covered by the scope of SFAS No. 150
were previously classified as equity; SFAS No. 150 requires that they be
classified as liabilities or, in certain circumstances, as assets. LCNB does
not currently hold any security investments with such characteristics and
SFAS No. 150 therefore has no effect on LCNB Corp.'s financial statements.
-23-
Item 3. Quantitative and Qualitative Disclosures about Market Risks
For a discussion of LCNB's asset and liability management policies and gap
analysis for the year ended December 31, 2000 see Item 7A, Quantitative and
Qualitative Disclosures about Market Risks, in the recently filed Form 10-K
for the year ended December 31, 2001. There have been no material changes in
LCNB's market risks, which for LCNB is primarily interest rate risk.
Item 4. Controls and Procedures
a) Disclosure controls and procedures. The Chief Executive Officer and the
Chief Financial Officer have carried out an evaluation of the effectiveness
of LCNB's disclosure controls and procedures that ensure that information
relating to LCNB required to be disclosed by LCNB in the reports that it
files or submits under the Securities and Exchange Act of 1934, as amended,
is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms. Based
upon this evaluation, these officers have concluded, that as of June 30,
2003, LCNB's disclosure controls and procedures were adequate.
b) Changes in internal control over financial reporting. During the period
covered by this report, there were no changes in LCNB's internal control over
financial reporting that have materially affected, or are reasonably likely
to materially affect, LCNB's internal control over financial reporting.
-24-
PART II. OTHER INFORMATION
LCNB Corp. and Subsidiaries
Item 1. Legal Proceedings - Not Applicable
Item 2. Changes in Securities and Use of Proceeds - Not Applicable
Item 3. Defaults Upon Senior Securities - Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders -
The Annual Meeting of the shareholders of LCNB Corp. was held on
April 15, 2003. One item was voted on by the shareholders of LCNB:
Election of three Class I directors to serve until the 2006 Annual
Meeting.
The following members of the Board of Directors of LCNB Corp.
were elected as Class I directors by the votes indicated:
Director For Against Withheld
-------- ------------- ------- --------
David S. Beckett 1,456,168.8476 - 24,470
Robert C. Cropper 1,480,038.8476 - 600
Stephen P. Wilson 1,461,718.8476 - 18,920
The following Class II and III members of the Board of Directors
have terms expiring in 2004 and 2005, respectively:
Class II: Corwin M. Nixon, Kathleen Porter Stolle, and Marvin E.
Young
Class III: William H. Kaufman, George L. Leasure, James B.
Miller, Howard E. Wilson
Item 5. Other Information - Not Applicable
-25-
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Title
11 Computation of consolidated earnings per
common share.
15 Letter regarding unaudited interim financial
information.
31.1 Certification of Chief Executive Officer
under Section 302 of the Sarbanes-Oxley Act
of 2002.
31.2 Certification of Chief Financial Officer
under Section 302 of the Sarbanes-Oxley Act
of 2002.
32 Certification of Chief Executive Officer and
Chief Financial Officer under Section 906 of
the Sarbanes-Oxley Act of 2002.
16 Reports on Form 8-K
LCNB filed a report on Form 8-K on April 15, 2003 to announce
earnings for the three months ended March 31, 2003.
-26-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LCNB Corp.
Registrant
/s/ Stephen P. Wilson /s/Steve P. Foster
- ------------------------- -------------------------
Stephen P. Wilson Steve P. Foster
President, CEO & Chairman Executive Vice President
of the Board of Directors and Chief Financial Officer
August 5, 2003 August 5, 2003
-27-
Exhibit 11
LCNB Corp.
Computation of Consolidated Earnings Per Common Share
For the Three and Six Months Ended June 30, 2003 and 2002
(in thousands, except shares and per share data)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2003 2002 2003 2002
Net income (loss) $ 1,698 $ 1,567 $ 3,304 $ 3,102
========= ========= ========= =========
Weighted average number
of shares outstanding
used in the calculation
of basic earnings per
common share 1,718,504 1,721,025 1,719,581 1,726,553
Add - Dilutive effect of
stock options (1) 75 - 26 -
--------- --------- --------- ---------
Adjusted weighted average
number of shares outstanding
used in the calculation of
diluted earnings per common
share 1,718,579 1,721,025 1,719,607 1,726,553
========= ========= ========= =========
Basic earnings per common
share $0.99 $0.92 $1.92 $1.80
Diluted earnings per common
share 0.99 0.92 1.92 1.80
(1) Stock options were not outstanding during the three and six months ended
June 30, 2002.
-28-
Exhibit 15
July 31, 2003
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Commissioners:
We are aware that our report dated July 31, 2003 on our review of interim
financial information of LCNB Corp. and Subsidiaries (the "Company"), issued
pursuant to the provisions of Statement on Auditing Standards No. 100, as of
and for the three-month and six-month periods ended June 30, 2003 and 2002
and included in the Company's quarterly report on Form 10-Q for the quarter
then ended, is incorporated by reference in the Registration Statement of the
Company on Form S-8, filed on March 13, 2003. We are also aware of our
responsibilities under the Securities Act of 1933.
Very truly yours,
/s/ J.D. Cloud & Co. L.L.P.
- ----------------------------
J.D. Cloud & Co. L.L.P.
Cincinnati, Ohio
-29-
Exhibit 31.1
CERTIFICATIONS
In connection with the Quarterly Report of LCNB Corp. on Form 10-Q for the
period ending June 30, 2003, as filed with the Securities and Exchange
Commission on the date hereof (the "Report"), I, Stephen P. Wilson, President
and Chief Executive Officer of LCNB Corp., certify, that:
(1) I have reviewed this quarterly report on Form 10-Q of LCNB Corp.;
(2) Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations, and cash flows of the registrant as of, and for, the
periods presented in this report;
(4) The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
a. Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
c. Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting.
(5) The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize, and report
financial information; and
b. Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
/s/ Stephen P. Wilson
- -------------------------------------
Stephen P. Wilson
President and Chief Executive Officer
August 5, 2003
-30-
Exhibit 31.2
CERTIFICATIONS
In connection with the Quarterly Report of LCNB Corp. on Form 10-Q for the
period ending June 30, 2003, as filed with the Securities and Exchange
Commission on the date hereof (the "Report"), I, Steve P. Foster, Executive
Vice President and Chief Financial Officer of LCNB Corp., certify, that:
(1) I have reviewed this quarterly report on Form 10-Q of LCNB Corp.;
(2) Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations, and cash flows of the registrant as of, and for, the
periods presented in this report;
(4) The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
a. Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
c. Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting.
(5) The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize, and report
financial information; and
b. Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
/s/ Steve P. Foster
- ----------------------------
Steve P. Foster
Executive Vice President and
Chief Financial Officer
August 5, 2003
-31-
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of LCNB Corp. (the "Company") on
Form 10-Q for the period ending June 30, 2003 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), we, Stephen P.
Wilson, Chief Executive Officer, and Steve P. Foster, Chief Financial
Officer, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss.
906 of the Sarbanes-Oxley Act of 2002, that to the best of our knowledge:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
/s/ Stephen P. Wilson /s/ Steve P. Foster
- ----------------------- -----------------------
Stephen P. Wilson Steve P. Foster
Chief Executive Officer Chief Financial Officer
Date: August 5, 2003
-32-