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, 2001 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 26, 2001, was 1,762,945 shares.
LCNB Corp. INDEX Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - September 30, 2001, and December 31, 2000 1 Consolidated Statements of Income - Three and Six Months Ended September 30, 2001 and 2000 2 Consolidated Statements of Comprehensive Income and Changes in Shareholders' Equity - Year Ended December 31, 2000 and Nine Months Ended September 30, 2001 3 Consolidated Statements of Cash Flows - Nine months ended September 30, 2001 and 2000 4 Notes to Consolidated Financial Statements 5-11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12-26 Item 3. Quantitative and Qualitative Disclosures about Market Risks 26 Part II. Other Information Item 1. Legal Proceedings 27 Item 2. Changes in Securities and Use of Proceeds 27 Item 3. Defaults by the Company on its Senior Securities 27 Item 4. Submission of Matters to a Vote of Security Holders 27 Item 5. Other Information 27 Item 6. Exhibits and Reports on Form 8-K 27
Part I - Financial Information Item 1. Financial Statements <TABLE> LCNB Corp. and Subsidiaries Consolidated Balance Sheets At September 30, 2001, and December 31, 2000 (thousands) <CAPTION> September 30, December 31, 2001 2000 (unaudited) (a) <s> <c> <c> ASSETS: Cash and due from banks $ 12,457 18,262 Federal funds sold 20,800 - ------- ------- Total cash and cash equivalents 33,257 18,262 Federal Reserve Bank stock 647 647 Federal Home Loan Bank stock 2,059 1,741 Securities available for sale, at market value 80,238 82,506 Loans 336,032 330,439 Less-allowance for loan losses 2,002 2,000 ------- ------- Net loans 334,030 328,439 Premises and equipment, net 11,509 10,502 Accrued income receivable 2,999 3,139 Intangible assets 3,843 4,210 Other assets 1,012 1,554 ------- ------- TOTAL ASSETS $469,594 451,000 ======= ======= LIABILITIES: Deposits- Noninterest-bearing $ 52,820 51,697 Interest-bearing 353,491 343,089 ------- ------- Total deposits 406,311 394,786 Long-term debt 8,319 6,356 Accrued interest and other liabilities 5,721 3,548 ------- ------- TOTAL LIABILITIES 420,351 404,690 ------- ------- SHAREHOLDERS' EQUITY: Common stock-no par value, authorized 4,000,000 shares; issued and outstanding 1,763,545 shares at September 30, 2001 and 1,775,942 shares at December 31, 2000 10,560 10,560 Surplus 10,553 10,553 Retained earnings 26,826 24,916 Treasury shares, at cost, 12,397 shares at September 30, 2001 (492) - Accumulated other comprehensive income, net of taxes 1,796 281 ------- ------- TOTAL SHAREHOLDERS' EQUITY 49,243 46,310 ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $469,594 451,000 ======= ======= <FN> (a) Financial information as of December 31, 2000, has been derived from the audited, consolidated financial statements of the Registrant. </FN> The accompanying notes to financial statements are an integral part of these statements. </TABLE> -1-
<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 ------------------ ---------------- 2001 2000 2001 2000 <s> <c> <c> <c> <c> INTEREST INCOME: Interest and fees on loans $6,726 6,733 20,737 19,314 Interest on federal funds sold 163 161 542 263 Interest on deposits in banks - 71 - 215 Dividends on Federal Reserve Bank and Federal Home Loan Bank stock 35 3 86 22 Interest on investment securities- Taxable 632 833 1,945 2,752 Non-taxable 365 382 1,106 1,197 ----- ----- ------ ------ TOTAL INTEREST INCOME 7,921 8,183 24,416 23,763 ----- ----- ------ ------ INTEREST EXPENSE: Interest on deposits 3,275 4,111 10,892 11,469 Interest on short-term borrowings 7 15 26 70 Interest on long-term debt 148 97 415 150 ----- ----- ------ ------ TOTAL INTEREST EXPENSE 3,430 4,223 11,333 11,689 ----- ----- ------ ------ NET INTEREST INCOME 4,491 3,960 13,083 12,074 PROVISION FOR LOAN LOSSES 70 52 180 134 ------ ----- ------ ------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,421 3,908 12,903 11,940 ----- ----- ------ ------ NON-INTEREST INCOME: Trust income 243 270 648 830 Service charges and fees 573 517 1,717 1,537 Net gain (loss) on sale of securities - - 17 (13) Insurance agency commissions 213 217 905 632 Other operating income 36 28 116 90 ----- ----- ------ ------ TOTAL NON-INTEREST INCOME 1,065 1,032 3,403 3,076 ----- ----- ------ ------ NON-INTEREST EXPENSE: Salaries and wages 1,536 1,409 4,493 4,246 Pension and other employee benefits 374 339 1,186 1,080 Equipment 162 169 490 431 Occupancy, net 275 276 797 807 State franchise tax 131 107 393 350 Marketing 98 112 271 297 Intangible amortization 129 129 386 454 Other 803 788 2,295 2,318 ----- ----- ------ ------ TOTAL NON-INTEREST EXPENSE 3,508 3,329 10,311 9,983 ----- ----- ------ ------ INCOME BEFORE INCOME TAXES 1,978 1,611 5,995 5,033 PROVISION FOR INCOME TAXES 575 468 1,699 1,413 ----- ----- ------ ------ NET INCOME $1,403 1,143 4,296 3,620 ===== ===== ====== ====== Dividends declared per common share $ 0.45 0.30 1.35 .90 Basic earnings per common share $ 0.80 0.64 2.43 2.04 Average shares outstanding (000's) 1,764 1,776 1,771 1,776 The accompanying notes to financial statements are an integral part of these statements. </TABLE> -2-
<TABLE> LCNB Corp. and Subsidiaries Consolidated Statements of Comprehensive Income and Changes in Shareholders' Equity (thousands) (unaudited) <CAPTION> Accumulated Other Total Common Retained Treasury Comprehensive Shareholders' Comprehensive Shares Surplus Earnings Shares Income Equity Income <s> <c> <c> <c> <c> <c> <c> <c> Balance January 1, 2000 $10,560 10,553 22,872 - (1,298) 42,687 Comprehensive Income: Net income 5,240 5,240 $5,240 Net unrealized loss on available-for-sale securities (net of taxes of $817) 1,587 1,587 1,587 Reclassification adjustment for net realized gain on sale of available-for-sale securities included in net income (net of tax benefit of $4) (8) (8) (8) ----- Total comprehensive income $6,819 ===== Cash dividends declared ($1.80 per share) (3,196) (3,196) ------ ------ ------ ------ ------ ------ Balance December 31, 2000 $10,560 10,553 24,916 - 281 46,310 Comprehensive Income: Net income 4,296 4,296 $4,296 Net unrealized gain on available-for-sale securities (net of taxes of $787) 1,526 1,526 1,526 Reclassification adjustment for net realized gain on sale of available-for-sale securities included in net income (net of taxes of $6) (11) (11) (11) ----- Total comprehensive income $5,811 ===== Treasury shares purchased (492) (492) Cash dividends declared (2,386) (2,386) ------ ------ ------ ------ ------ ------ Balance September 30, 2001 10,560 10,553 26,826 (492) 1,796 49,243 ====== ====== ====== ====== ====== ====== The accompanying notes to financial statements are an integral part of these statements. </TABLE> -3-
<TABLE> LCNB Corp. and Subsidiaries Consolidated Statements of Cash Flows (thousands) (unaudited) <CAPTION> Nine Months Ended September 30 ------------------ 2001 2000 <s> <c> <c> CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 4,296 3,620 Adjustments for non-cash items - Depreciation and amortization 1,582 1,455 Provision for loan losses 180 134 Deferred tax benefit (129) (69) Realized (gain) loss on sales of securities (17) 13 Origination of mortgage loans for sale (6,680) - Proceeds from sales of mortgage loans 6,708 - (Increase) decrease in accrued income receivable 140 (96) Other, net 335 430 ------ ------ NET CASH PROVIDED BY OPERATING ACTIVITIES 6,415 5,487 ------ ------ CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities of securities available for sale 10,952 21,446 Proceeds from sales of securities available for sale 8,809 3,988 Purchases of securities available for sale (15,381) (5,566) Purchases of Federal Home Loan Bank stock (252) (857) Net increase in loans (6,097) (38,048) Purchases of premises and equipment (1,862) (2,944) Proceeds from sale of premises and equipment 188 - ------ ------ NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (3,643) (21,981) ------ ------ CASH FLOWS FROM FINANCING ACTIVITIES: Net change in deposits 11,525 15,735 Net change in short-term borrowings 1,613 (849) Proceeds from long-term debt 2,000 6,000 Principal payments on long-term debt (37) - Cash dividends paid (2,386) (1,598) Purchase of treasury shares (492) - ------ ------ NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 12,223 19,288 ------ ------ NET CHANGE IN CASH AND CASH EQUIVALENTS 14,995 2,794 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 18,262 24,140 ------ ------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $33,257 26,934 ====== ====== SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid $11,497 11,291 Income taxes paid 1,928 1,521 The accompanying notes to financial statements are an integral part of these statements. </TABLE> -4-
LCNB Corp. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) NOTE 1 - BASIS OF PRESENTATION Effective May 18, 1999, Lebanon Citizens National Bank ("Lebanon Citizens"), was reorganized into a one-bank holding company structure. On April 11, 2000, LCNB Corp. ("LCNB"), 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 are attributable to its wholly owned subsidiaries, Lebanon Citizens and Dakin Insurance Agency, Inc. ("Dakin")(see Note 3). The accompanying unaudited consolidated financial statements include the accounts of LCNB, 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 financial information presented on pages one through eight 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 nine. 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 and nine months ended September 30, 2001 are not necessarily indicative of the results to be expected for the full year ending December 31, 2001. 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 2000 Form 10-K filed with the Securities and Exchange Commission. -5-
LCNB Corp. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) (Continued) 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's capital structure includes no potential for dilution. There are no warrants, options or other arrangements that would increase the number of shares outstanding. NOTE 3 - ACQUISITION On April 11, 2000, Dakin was acquired and became a wholly-owned subsidiary of LCNB. Under the terms of the agreement, Dakin shareholders received 15,942 shares of LCNB 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 have been restated to retroactively combine the financial statements of LCNB and Dakin as if the acquisition had occurred at the beginning of the earliest period presented. NOTE 4 - LOANS Major classifications of loans at September 30, 2001 and December 31, 2000 are as follows (thousands): <TABLE> <CAPTION> September 30, December 31, 2001 2000 -------- ----------- <s> <c> <c> Commercial and industrial $ 39,186 $ 36,449 Commercial, secured by real estate 70,831 59,043 Residential real estate 174,637 185,013 Consumer, excluding credit card 43,314 40,860 Agricultural 2,394 2,238 Credit card 2,461 3,049 Other loans 450 863 Lease financing 2,112 2,219 ------- ------- 335,385 329,734 Deferred net origination costs 647 705 ------- ------- 336,032 330,439 Allowance for loan losses (2,002) (2,000) ------- ------- Loans - net $334,030 328,439 ======= ======= </TABLE> -6-
LCNB Corp. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) (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 September 30, 2001 and December 31, 2000 were $18,344,000 and $14,046,000, respectively. Loans sold to the FHLMC during the three and nine months ended September 30, 2001 totaled $2,582,000 and $6,680,000. No loans were sold to the FHLMC during the three and nine months ended September 30, 2000. <TABLE> Changes in the allowance for loan losses were as follows (thousands): <CAPTION> September 30, September 30, 2001 2000 --------- --------- <s> <c> <c> Balance - beginning of year $2,000 2,000 Provision for loan losses 180 134 Charge offs (214) (170) Recoveries 36 36 ----- ----- Balance - end of period $2,002 2,000 ===== ===== </TABLE> There was a $23,000 nonaccrual loan at September 30, 2001 and no nonaccrual loans at December 31, 2000. The nonaccrual loan at September 30, 2001 was a second mortgage loan on a one-to-four family residential property. 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. 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 September 30, 2001 and December 31, 2000 were as follows (thousands): -7-
LCNB Corp. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) (Continued) <TABLE> <CAPTION> September 30, December 31, 2001 2000 --------- --------- <s> <c> <c> Commitments to extend credit $59,252 55,034 Standby letters of credit 6,208 5,768 </TABLE> Commitments to extend credit are agreements to lend to a customer as long s 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 September 30, 2001 and December 31, 2000, outstanding guarantees of $1,318,000 and $768,000, respectively, were issued to developers and contractors. These guarantees generally expire within one year and are fully secured. In addition, LCNB is a participant in a letter of credit securing payment of principal and interest on a bond issue. LCNB's participation in the letter of credit was $4.9 million and $5.0 million at September 30, 2001 and December 31, 2000, respectively. This letter of credit will expire July 15, 2005, 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. -8-
LCNB Corp. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) (Continued) NOTE 6 - RECENT ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets", on July 20, 2001. SFAS No. 141 provides that all business combinations shall be accounted for using the purchase method of accounting; the use of the pooling-of-interests method will be prohibited. The provisions of SFAS No. 141 will apply to all business combinations initiated after June 30, 2001 or all business combinations accounted for by the purchase method that are completed after June 30, 2001. LCNB was not involved in any recent business combination discussions. SFAS No 142 provides that goodwill shall not be amortized but should be tested for impairment on an annual basis, using criteria prescribed in the statement. If the carrying amount of goodwill exceeds its implied fair value, as recalculated, an impairment loss equal to the excess shall be recognized. Recognized intangible assets other than goodwill should be amortized over their useful lives and reviewed for impairment in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"(superseded by SFAS No. 144, see discussion which follows). SFAS No. 142 will be effective for fiscal years beginning after December 15, 2001. Accordingly, LCNB will adopt the statement on January 1, 2002. Upon initial application of SFAS No. 142, goodwill and other intangible assets arising from acquisitions completed before July 1, 2001 shall be accounted for in accordance with the provisions of this statement. An initial impairment test is to be completed on all goodwill within six months of initially applying the statement. Any impairment loss recognized as a result of completing the initial impairment test is to be recognized in the first interim period financial statements, regardless of the interim period in which the measurement of the loss is completed. Included in intangible assets of $3,843,000 at September 30, 2001, was goodwill totaling $1,320,000. The goodwill is being amortized over 15 years; approximately $89,000 was amortized to expense during the first three quarters of 2001. In accordance with SFAS No. 142, LCNB will discontinue amortizing goodwill and will perform the required impairment tests. The first impairment test will be completed on or before June 30, 2002 and the corresponding impairment loss, if any, recognized in the 2002 financial statements. SFAS No. 143, "Accounting for Asset Retirement Obligations", was issued by the FASB on August 16, 2001. This FASB focuses on accounting for closure costs for assets that cannot be simply abandoned or disposed of at the end of their useful lives. Examples include cleanup costs for nuclear power plants or restoration costs for landfills and strip mines. LCNB does not own any assets requiring such closure costs and is not affected by this statement. -9-
LCNB Corp. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) (Continued) SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", was issued by the FASB on October 3, 2001 and is effective for fiscal years beginning after December 15, 2001. This statement effectively supersedes SFAS No. 121 and Accounting Principles Board ("APB") Opinion No. 30 and requires that long-lived assets, including discontinued operations, that are to be disposed of by sale be measured at the lower of carrying amount or fair value less cost to sell. The statement also resolves certain implementation issues regarding SFAS No. 121. Discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet occurred. In addition, the definition of "discontinued operations" was broadened to include all components of an entity with operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a disposal transaction. The only long-lived assets owned by LCNB are its offices. This statement, therefore, is not expected to have a material impact on LCNB's statements of financial condition or results of operations. -10-
INDEPENDENT ACCOUNTANTS' REVIEW REPORT To the Shareholders and Board of Directors LCNB Corp. We have reviewed the accompanying consolidated balance sheet of LCNB Corp. and subsidiaries as of September 30, 2001, and the related consolidated statements of income, and cash flows for each of the three-month and nine- month periods ended September 30, 2001 and 2000, and the related consolidated statement of comprehensive income and changes in shareholders' equity for the nine-month period ended September 30, 2001. 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 as of December 31, 2000 (presented herein), and the related consolidated statements of income, comprehensive income and changes in shareholders' equity, and cash flows for the year then ended (not presented herein), and in our report dated January 13, 2001, 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, 2000, is fairly stated in all material respects. /s/ J.D. Cloud & Co. L.L.P. --------------------------- J.D. Cloud & Co. L.L.P. Cincinnati, Ohio October 26, 2001 -11-
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 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 and Dakin as if the acquisition had occurred at the beginning of the earliest period. 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 earned $1,403,000, or $0.80 per share, for the three months ended September 30, 2001 compared to $1,143,000, or $0.64 per share, for the three months ended September 30, 2000. The annualized return on average assets (ROAA) was 1.20% and the annualized return on average equity (ROAE) was 11.37% for the third quarter of 2001, compared with an ROAA of 1.00% and an ROAE of 10.19% for the third quarter of 2000. LCNB earned $4,296,000, or $2.43 per share, during the first nine months of 2001 compared to $3,620,000, or $2.04 per share, for the first nine months of 2000. The ROAA and ROAE for the first nine months of 2001 were 1.24% and 11.95%, respectively. The comparable ratios for the first nine months of 2000 were 1.06% and 11.04%, respectively. NET INTEREST INCOME LCNB's primary source of earnings is net interest income, which is the difference between interest earned from loans and other investments and interest paid on deposits and other liabilities. The following table presents, for the three and nine months ended September 30, 2001 and 2000, 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-
<TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30 September 30 ------------------ ---------------- 2001 2000 2001 2000 (Dollars in thousands) <s> <c> <c> <c> <c> Interest-earning Assets: Average balance (1) $434,214 423,410 431,276 412,180 Interest income (2) 8,109 8,318 24,986 24,180 Average rate 7.41% 7.82% 7.75% 7.84% Interest-bearing Liabilities: Average balance 357,267 357,485 360,124 346,917 Interest expense 3,430 4,223 11,333 11,689 Average rate 3.81% 4.70% 4.21% 4.50% Net interest income 4,679 4,095 13,653 12,491 Net interest margin on a taxable equivalent basis (3) 4.28% 3.85% 4.23% 4.05% </TABLE> <FN> (1) Includes nonaccrual loans, if any. (2) Income from tax-exempt securities 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. </FN> THREE MONTHS ENDED SEPTEMBER 30, 2001 VS. 2000. The following table presents the changes in interest income and expense for each major category of interest-earning assets and interest-bearing liabilities and the amount of change attributable to volume and rate changes for the three months ended September 30, 2001 as compared to the comparable period in 2000. 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-
<TABLE> <CAPTION> Three Months Ended September 30, 2001 vs. 2000 -------------------------- Increase (decrease) due to: Volume Rate Total (In thousands) <s> <c> <c> <c> Interest-earning Assets Loans $ 334 (341) (7) Federal funds sold 99 (97) 2 Deposits in banks (71) - (71) Federal Reserve Bank stock - - - Federal Home Loan Bank stock 19 13 32 Investment securities Taxable (139) (62) (201) Nontaxable (6) 42 36 --- --- --- Total interest income 236 (445) (209) Interest-bearing Liabilities Deposits (29) (807) (836) Short-term borrowings 4 (12) (8) Long-term debt 34 17 51 --- --- --- Total interest expense 9 (802) (793) --- --- --- Net interest income $227 357 584 === === === </TABLE> Net interest income on a fully tax equivalent basis for the three months ended September 30, 2001 totaled $4,679,000, an increase of $584,000 from the comparable period in 2000. Total interest expense decreased $793,000, offset slightly by a decrease in total interest income of $209,000. The decrease in total interest income was primarily due to a 41 basis point (a basis point equals 0.01%) reduction in the average rate earned, partially offset by a $10.8 million increase in average total earning assets. The decrease in total interest expense was primarily due to an 89 basis point decrease in the average rate paid. The increase in average earning assets was primarily due to a $16.1 million increase in the average loan portfolio and a $9.0 million increase in average federal funds sold, which is a short-term type of investment. A $15.8 million decrease in average investment securities and deposits in other banks and a decrease in cash and due from banks were used to fund the loan and federal funds sold increases. -14-
The decrease in average rates earned and paid between the three months ended September 30, 2001 and 2000 reflects a general decline in market rates primarily caused by decreases in the federal funds rate approved by the Open Market Committee of the Federal Reserve Board. NINE MONTHS ENDED SEPTEMBER 30, 2001 VS. 2000. The following table presents the changes in interest income and expense for each major category of interest-earning assets and interest-bearing liabilities and the amount of change attributable to volume and rate changes or the nine months ended September 30, 2001 as compared to the comparable period in 2000. <TABLE> <CAPTION> Nine Months Ended September 30, 2001 vs. 2000 -------------------------- Increase (decrease) due to: Volume Rate Total (In thousands) <s> <c> <c> <c> Interest-earning Assets Loans $1,805 (382) 1,423 Federal funds sold 384 (105) 279 Deposits in banks (215) - (215) Federal Reserve Bank stock - 1 1 Federal Home Loan Bank stock 52 11 63 Investment securities Taxable (668) (139) (807) Nontaxable (93) 155 62 ----- --- ----- Total interest income 1,265 (459) 806 Interest-bearing Liabilities Deposits 301 (878) (577) Short-term borrowings (23) (21) (44) Long-term debt 250 15 265 ----- --- ----- Total interest expense 528 (884) (356) ----- --- ----- Net interest income $ 737 425 1,162 ===== === ===== </TABLE> Net interest income on a fully tax equivalent basis for the first three quarters of 2001 totaled $13,653,000, an increase of $1,162,000 from the comparable period in 2000. Total interest income increased $806,000 and total interest expense decreased $356,000. -15-
The increase in total interest income was primarily due to a $19.1 million increase in average total earning assets and to a change in the mix of earning assets. Average loans increased $28.9 million and average federal funds sold increased $11.6 million, while average investment securities and deposits in other banks decreased approximately $23.0 million. The proceeds from the sales and maturities of the securities and deposits in other banks were used to fund growth in the loan portfolio and in federal funds sold. Also helping to fund loan growth was a $13.2 million increase in average interest-bearing liabilities. The decrease in total interest expense was primarily due to a 29 basis point decline in the average rate paid, partially offset by the $13.2 million increase in average interest-bearing liabilities. The increase in average interest-bearing liabilities is primarily due to a $9.2 million increase in average interest-bearing deposits and to a $4.6 million increase in average long-term debt. Three Federal Home Loan Bank advances of $2.0 million each obtained during June, 2000 and a $2.0 million Federal Home Loan Bank advance obtained in April, 2001 account for the increase in average long-term debt. Growth in the money fund investment account and prime savings, both premium rate savings accounts, account for the increase in average deposits. Management theorizes that, due to the falling rate economic environment, investors are reducing long-term investments and placing the funds in highly liquid, short-term instruments. This means that much of the recent growth in deposits 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. 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. -16-
<TABLE> <CAPTION> Quarter Ended Nine Months Ended September 30, September 30, 2001 2000 2001 2000 (thousands) (thousands) <s> <c> <c> <c> <c> Balance, beginning of period $2,000 2,000 2,000 2,000 ----- ----- ----- ----- Charge-offs 80 63 214 170 Recoveries 12 12 36 36 ----- ----- ----- ----- Net charge-offs 68 51 178 134 ----- ----- ----- ----- Provision for loan losses 70 51 180 134 ----- ----- ----- ----- Balance, end of period $2,002 2,000 2,002 2,000 ===== ===== ===== ===== </TABLE> Charge-offs for the first three quarters of 2001 and 2000 are attributable to consumer loans, including $26,000 and $27,000 in credit card charge-offs for 2001 and 2000, respectively. 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 2001 2000 -------- ----------- (thousands) <s> <c> <c> Loan accounted for on non-accrual basis $ 23 - Accruing loans that are past due 90 days or more 93 111 Renegotiated loans - - --- --- Total $116 111 === === </TABLE> Accruing loans which are past due 90 days or more at September 30, 2001 and December 31, 2000 consist of installment loans and loans secured by 1-4 family residential property -17-
NON-INTEREST INCOME Total non-interest income of $1,065,000 increased $33,000 or 3.20% during the third quarter of 2001 compared to the third quarter of 2000 primarily due to increases in service charges and fees, partially offset by a decrease in trust income. Total service charges and fees increased $56,000 or 10.83% primarily due to increases in return check fees and check card income. LCNB increased the returned check fee from $20 to $25 in December, 2000. The check card fees increased primarily due to a greater number of cards outstanding during the third quarter, 2001. Trust income decreased $27,000 or 10.00% due to a decrease in the market value of assets under management, on which fees are based. The decline in asset market value was primarily the result of general market conditions. Total non-interest income for the first nine months of 2001 was $327,000 or 10.63% greater than for the comparable period in 2000 primarily due to increases in service charges and fees and insurance agency commissions, partially offset by a decrease in trust income. Service charges and fees increased $180,000 or 11.71% and trust income decreased $182,000 or 21.93% for substantially the same reasons mentioned above. Insurance agency commissions for the first three quarters of 2001 were $273,000 or 43.20% greater than for the first three quarters of 2000 largely due to contingency commissions received during the first quarter, 2001. 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. Contingency commissions received during the first quarter, 2001 totaled $189,000, but only $6,000 during the first quarter, 2000. The balance of the increase was generated from commissions received on new and renewing policies. Management believes that claims filed by Dakin clients with underwriters during 2001 will reduce the contingency commission received during 2002 to a minimal level. NON-INTEREST EXPENSE Total non-interest expense increased $179,000 or 5.38% in the third quarter, 2001 compared with the third quarter, 2000 and $328,000 or 3.29% during the first nine months of 2001 compared with the first nine months of 2000. The following table shows the increases or decreases for various expense categories for the three and nine months ended September 30, 2001 as compared to same periods in 2000: -18-
<TABLE> <CAPTION> Increase (Decrease) Increase (Decrease) 3 Months Ended 9 Months Ended September 30, 2001 September 30, 2001 $ % $ % (Dollars in thousands) <s> <c> <c> <c> <c> Salaries and wages $127 9.01% $247 5.82% Pension and other employee benefits 35 10.32 106 9.81 Equipment (7) (4.14) 59 13.69 Occupancy, net (1) (0.36) (10) (1.24) State franchise tax 24 22.43 43 12.29 Marketing (14) (12.50) (26) (8.75) Intangible amortization - - (68) (14.98) Other 15 1.90 (23) (0.99) --- --- Totals $179 5.38 $328 3.29 === === </TABLE> Salaries and wages increased due to normal salary and wage increases, an increase in the number of employees, and increased commissions paid Dakin's agents because of the increase in the volume of policies written. Pension and other employee benefits increased due to higher pension expense and health insurance costs. Equipment expense increased primarily due to depreciation recognized on furniture and equipment purchased during 2000 for the newly constructed Oxford and Goshen offices and the extensively remodeled Columbus Avenue office. Marketing was lower due to timing of promotional campaigns. Management expects that total marketing expenses for 2001 will be similar to total costs for 2000. On June 29, 2001, LCNB signed a contract with Jack Henry & Associates for replacement of LCNB's core processing system, including computer hardware and software. Conversion from the current system to the new system is tentatively scheduled for the third quarter of 2002, but some enhancements and improvements will be installed in 2001 and 2003. Management believes the operating efficiencies and improved customer service the new system will provide will be beneficial to LCNB in the long run, but, as with most improvements, there will be a cost. Anticipated software and hardware costs total approximately $1,086,000, which will be capitalized and charged to depreciation expense over the estimated lives of the assets, primarily seven years. The current system is approximately eleven years old and is fully depreciated, so equipment expense in future years will increase by the amount of the depreciation. Costs of converting data files from the current to the new system and costs of training employees on the new system are expected to total $8,000 during 2001, $129,000 during 2002 and $31,000 during 2003 and will be expensed as incurred. -19-
FINANCIAL CONDITION The premises and equipment, net balance at September 30, 2001 was approximately $1.0 million greater than at December 31, 2000 primarily due to construction costs associated with a new branch office located on Washington Blvd. in Hamilton and a new drive-up ATM located in Harveysburg. Accrued interest and other liabilities at September 30, 2001 was $2.2 million greater than at December 31, 2000 largely due to a $1.6 million increase in the treasury, tax, and loan ("TTL") payable. TTL represents customers' federal tax deposits between the time they are accepted by LCNB and the time they are remitted to the Internal Revenue Service. The following table highlights the changes in the balance sheet. The analysis uses quarterly averages to give a better indication of balance sheet trends. -20- <TABLE> <CAPTION> CONDENSED AVERAGE BALANCE SHEETS (thousands) September 30, June 30, March 31, 2001 2001 2001 <s> <c> <c> <c> ASSETS Interest-earning: Interest-bearing deposits with banks $ - - - Federal funds sold 19,159 22,729 10,107 Securities 81,803 81,351 80,360 Loans 333,252 333,430 331,501 ------- ------- ------- Total interest-earning assets 434,214 437,510 421,968 Noninterest-earning: Cash and due from banks 12,094 16,556 16,255 All other assets 19,264 18,695 19,402 Allowance for credit losses (2,002) (2,003) (2,002) ------- ------- ------- Total assets $463,570 470,758 455,623 ======= ======= ======= LIABILITIES Interest-bearing: Interest-bearing deposits $347,998 358,464 348,345 Short-term borrowings 955 841 758 Long-term debt 8,314 8,327 6,350 ------- ------- ------- Total interest-bearing liabilities 357,267 367,632 355,453 Noninterest-bearing: Noninterest-bearing deposits 54,448 52,783 50,565 All other liabilities 2,891 2,283 2,430 ------- ------- ------- Total liabilities 414,606 422,698 408,448 SHAREHOLDERS' EQUITY 48,964 48,060 47,175 ------- ------- ------- Total liabilities and shareholders' equity $463,570 470,758 455,623 ======= ======= ======= </TABLE> -21-
SEPTEMBER 30, 2001 VS. JUNE 30, 2001. Total average assets for the third quarter, 2001 decreased approximately $7.2 million as compared to the second quarter, 2001. Most of the decrease was from federal funds sold, which is a short-term investment vehicle, and cash and due from banks. Average securities and average loans did not change materially when comparing third and second quarter balances for 2001. LCNB continues to originate new loans, but, beginning during the first quarter, 2001, has been selling a large majority of its fixed rate residential loans to the Federal Home Loan Mortgage Corporation (FHLMC) immediately after origination. Approximately $6.7 million of real estate loans were sold to FHLMC during the nine months ended September 30, 2001, while no loans were sold during 2000. Management began selling the loans after determining that current, historically low market rates for residential loans were not profitable in the long run. Total loans remain level because of growth in the commercial loan portfolio, which had an average balance during the third quarter that was $4.9 million greater than during the second quarter. Average interest-bearing deposits for the third quarter, 2001 were $10.5 million less than for the second quarter, 2001. The third quarter decline occurred in the average balance for the money fund investment account product, which was $12.9 million less during the third quarter when compared to the second quarter. This decline was intentional and relates to a corporate sweep checking account product offered by Lebanon Citizens. Excess funds in the checking accounts are automatically swept into the customer's choice of several different mutual funds or a Lebanon Citizens savings product that is grouped with the money fund investment accounts. After considering the declining rates LCNB was able to earn on its overnight federal fund investments and LCNB's increasing liquidity, management decided to decrease the rate offered on its sweep alternative and allow the funds to be transferred to the mutual fund alternatives. Much deposit growth occurred in LCNB's prime savings product - the third quarter, 2001 average balance was $3.0 million greater than for the second quarter. Average balances for certificates of $100,000 or more and other time certificates were substantially similar during the third and second quarters. JUNE 30, 2001 VS. MARCH 31, 2001. Total average assets for the second quarter, 2001 was approximately $15.1 million greater than for the first quarter, 2001, primarily because average federal funds sold were $12.6 million greater during the second quarter than during the first quarter. Average securities and average loans did not change materially when comparing second and first quarter balances for 2001. As discussed above, LCNB was selling a large majority of its fixed rate residential loans immediately after origination. Loan average balances remained level because the second quarter average commercial loan balance was $6.0 million greater than for the first quarter. -22-
Average interest-bearing deposits for the second quarter balance were $10.1 million greater than for the first quarter, 2001. The second quarter average prime savings balance was $5.4 million greater than the first quarter average. Average certificates of $100,000 or more and other time certificates grew a combined total of $3.7 million during the second quarter, 2001 when compared to the first quarter. Long-term debt for the second quarter, 2001 was $2.0 greater than for the first quarter, 2001. Long-term debt increased due to a $2.0 million advance obtained from the Federal Home Loan Bank on April 2, 2001. 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 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'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 I capital plus Tier II 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 I capital to adjusted quarterly average total assets of 3.0%. A summary of the regulatory capital and capital ratios of LCNB follows: <TABLE> <CAPTION> At At September 30, December 31, 2001 2000 <s> <c> <c> Regulatory Capital: Shareholders' equity $49,243 46,310 Goodwill and other intangibles (3,843) (4,210) Net unrealized securities gains (1,796) (281) ------ ------ Tier I risk-based capital 43,604 41,819 Eligible allowance for loan losses 2,002 2,000 ------ ------ Total risk-based capital $45,606 43,819 ====== ====== Capital Ratios: Total risk-based 15.13% 14.88% Tier I risk-based 14.46% 14.20% Leverage 9.53% 9.22% </TABLE> -23-
On April 17, 2001, LCNB's Board of Directors authorized three separate stock repurchase programs, to be run consecutively and commence immediately. The shares purchased will be held for future corporate purposes. The first stock repurchase program is an "Odd Lot Repurchase Program." Under the terms of this program, LCNB offered to purchase all the shares of any shareholder who owns 100 or fewer shares of LCNB. Letters were mailed to eligible shareholders on April 20, 2001, and the offer expired on June 4, 2001. The purchase price was $40 per share, which was the fair market value per share on April 12, 2001, plus an additional $5.50 premium. All expenses for this program were paid by LCNB. A total of 385 shares were purchased from seven shareholders under this program. The second repurchase program is a "Market Repurchase Program." LCNB will purchase up to 50,000 shares of its stock through market transactions with a selected stockbroker. The third program is a "Private Sale Repurchase Program." This 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. 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 87.43% of total deposits at September 30, 2001 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, 2001, Lebanon Citizens liquid assets amounted to $113.5 million or 24.19% of total gross assets, an increase from $100.8 million or 22.34% at December 31,2000. 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. Lebanon Citizens experienced no liquidity or operational problems as a result of the current liquidity levels. -24-
RECENT ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets", on July 20, 2001. SFAS No. 141 provides that all business combinations shall be accounted for using the purchase method of accounting; the use of the pooling-of-interests method will be prohibited. The provisions of SFAS No. 141 will apply to all business combinations initiated after June 30, 2001 or all business combinations accounted for by the purchase method that are completed after June 30, 2001. LCNB was not involved in any recent business combination discussions. Prior to SFAS No. 142, goodwill was amortized over its estimated life, not to exceed forty years. Under SFAS No 142, goodwill will not be amortized but should be tested for impairment on an annual basis, using criteria prescribed in this statement. If the carrying amount of goodwill exceeds its implied fair value, as recalculated, an impairment loss equal to the excess shall be recognized. Recognized intangible assets other than goodwill should be amortized over their useful lives and reviewed for impairment in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"(superceded by SFAS No. 144, see discussion which follows). SFAS No. 142 will be effective for fiscal years beginning after December 15, 2001. Accordingly, LCNB will adopt the statement on January 1, 2002. Upon initial application of SFAS No. 142, goodwill and other intangible assets arising from acquisitions completed before July 1, 2001 shall be accounted for in accordance with the provisions of this statement. That is, amortization of goodwill should be discontinued and the remaining asset tested for impairment on an annual basis. An initial impairment test is to be completed on all goodwill within six months of initially applying the statement. Any impairment loss recognized as a result of completing the initial impairment test is to be recognized in the first interim period financial statements, regardless of the interim period in which the measurement of the loss is completed. Included in intangible assets of $3,843,000 at September 30, 2001, was goodwill totaling $1,320,000. The goodwill is being amortized over 15 years; approximately $89,000 was amortized to expense during the first three quarters of 2001. In accordance with SFAS No. 142, LCNB will discontinue amortizing goodwill and will perform the required impairment tests. The first impairment test will be completed on or before June 30, 2002 and the corresponding impairment loss, if any, recognized in the 2002 financial statements. SFAS No. 143, "Accounting for Asset Retirement Obligations", was issued by the FASB on August 16, 2001. This FASB focuses on accounting for closure costs for assets that cannot be simply abandoned or disposed of at the end of their useful lives. Examples include cleanup costs for nuclear power plants or restoration costs for landfills and strip mines. LCNB does not own any assets requiring such closure costs and is not affected by this statement. -25-
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", was issued by the FASB on October 3, 2001 and is effective for fiscal years beginning after December 15, 2001. This statement effectively supersedes SFAS No. 121 and APB Opinion No. 30 and requires that long-lived assets, including discontinued operations, that are to be disposed of by sale be measured at the lower of carrying amount or fair value less cost to sell. The statement also resolves certain implementation issues regarding SFAS No. 121. Discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet occurred. In addition, the definition of "discontinued operations" was broadened to include all components of an entity with operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a disposal transaction. The only long-lived assets owned by LCNB are its offices. This statement, therefore, is not expected to have a material impact on LCNB's statements of financial condition or results of operations. Item 3. Quantitative and Qualitative Disclosures about Market Risks QUANTITATIVE AND QUALITATIVE DISLCOSURES 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 LCNB's Form 10-K for the year ended December 31, 2000. There have been no material changes in LCNB's market risks, which for LCNB is primarily interest rate risk. -26-
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 by the Company on its Senior Securities - Not Applicable Item 4. Submission of Matters to a Vote of Security Holders - None Item 5. Other Information - Not Applicable Item 6. Exhibits and Reports on Form 8-K a. Exhibits None b. Reports on Form 8-K - None -27-
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LCNB Corp. Registrant Date: October 29, 2001 /s/Steve P. Foster ------------------------ Steve P. Foster Executive Vice President and Chief Financial Officer -28-