Item 1. Business
FORWARD LOOKING STATEMENTS
Certain matters disclosed herein may be deemed to be forward-looking statements that involve risks and uncertainties, including regulatory policy changes, interest rate fluctuations, loan demand, loan delinquencies and losses, and other risks. Actual strategies and results in future time periods may differ materially from those currently expected. Such forward- looking statements represent management's judgment as of the current date. LCNB Corp. disclaims, however, any intent or obligation to update such forward-looking statements.
ORGANIZATION ACTIVITIES AND ACQUISTION
On May 18, 1999, Lebanon Citizens National Bank ("Lebanon Citizens") held a special shareholders meeting for the purpose of approving the reorganization of Lebanon Citizens into a one-bank holding company structure. The reorganization was approved and consummated immediately following the special meeting.
The reorganization was effected through the merger of Lebanon Citizens with and into LC Interim National Bank, a wholly owned subsidiary of the new bank holding company, LCNB Corp. (LCNB). Concurrent with the merger, LC Interim National Bank changed its name to "Lebanon Citizens National Bank" and is now operated as the wholly owned bank subsidiary of LCNB. The consideration for the merger was ten shares of LCNB common stock for each share of Lebanon Citizens National Bank common stock held by the shareholders. Following the merger, all shareholders of Lebanon Citizens maintained the same stock ownership percentage in the holding company as they had in Lebanon Citizens. Following the merger, Lebanon Citizens' business continued unchanged with the same management and employees.
As part of the reorganization of Lebanon Citizens into a bank holding company structure, it was necessary to file a registration statement with the Securities and Exchange Commission. This registration statement also served the purpose of registering LCNB as a Securities Exchange Act of 1934 ("1934 Act") reporting company. Lebanon Citizens at the end of calendar year 1998, had over 500 shareholders and by law was required to register as a 1934 Act company. By virtue of the reorganization, LCNB became the registering company and is now a public company obligated to comply with the reporting requirements of the 1934 Act.
The Gramm-Leach-Bliley Act (the "Gramm-Leach Act"), known commonly as the "Financial Services Modernization Act", was signed into law on November 12, 1999 and became effective March 11, 2000. This new act, among other changes, effectively allows the creation of a new financial services holding company that can offer a full range of financial products and engage in expanded approved activities such as insurance and securities services. Pursuant to the Gramm-Leach Act, LCNB converted from a bank holding company to a financial holding company, effective as of April 11, 2000.
On April 11, 2000 LCNB acquired Dakin Insurance Agency, Inc. In order to facilitate the acquisition of Dakin Insurance Agency, Inc., LCNB formed Dakin Acquisition Corporation in November 1999, under the laws of the state of Ohio, as a wholly owned subsidiary of LCNB. On the acquisition date, Dakin Acquisition Corporation merged with and into Dakin Insurance Agency, Inc. and Dakin Insurance Agency, Inc. became the surviving corporation (hereinafter the surviving company is referred to herein as Dakin). The Articles of Incorporation and Regulations of Dakin Acquisition Corporation became the governing documents of Dakin. At the consummation of the merger, the individual shareholders of Dakin exchanged all of their outstanding shares for 15,942 shares of LCNB common stock. Following the merger, Dakin became a wholly owned subsidiary of LCNB.
DESCRIPTION OF LCNB CORP'S BUSINESS
General Description
LCNB is a locally owned financial holding company headquartered in Lebanon, Ohio. Through its subsidiaries, LCNB is engaged in the commercial banking and insurance agency businesses.
The predecessor of LCNB, Lebanon Citizens National Bank, was formed as a national banking association in 1877. On May 18, 1999, Lebanon Citizens became a wholly owned subsidiary of LCNB. Lebanon Citizens main office is located in Warren County, Ohio and 18 branch offices are located in Warren, Butler, Clinton, Clermont, and Hamilton Counties, Ohio. In addition, Lebanon Citizens operates 28 automated teller machines (ATMs) in its market area.
Lebanon Citizens is a full service bank offering a wide range of commercial and personal banking services including commercial loans, real estate loans, construction loans, consumer loans, Small Business Administration loans, Visa and MasterCard credit cards, and commercial leases. Other services offered include safe deposit boxes, night depositories, U.S. savings bonds, travelers' checks, money orders, cashiers checks, bank-by-mail, automatic teller machines (ATMs), cash and transaction services, debit cards, wire transfers, electronic funds transfer, utility bill collections, notary public service, personal computer based cash management services, 24 hour telephone banking, PC Internet banking, and other services tailored for both individuals and businesses.
Lebanon Citizens' residential mortgage lending activities consist primarily of loans for purchasing personal residences, home equity loans, or loans for commercial or consumer purposes secured by residential mortgages. Consumer lending activities consist of traditional forms of financing for automobile and personal loans plus indirect automobile loans.
Lebanon Citizens' range of deposit services include checking accounts, NOW accounts, savings accounts, Christmas and vacation savings, money market accounts, Classic 50 accounts (a Senior Citizen program), individual retirement accounts, certificates of deposit, and overdraft protection. Deposits of Lebanon Citizens are insured up to applicable limits by the Bank Insurance Fund, which is administered by the Federal Deposit Insurance Corporation.
The Trust and Investment Management Division of Lebanon Citizens performs complete trust administrative functions and offers agency and trust services, retirement savings products, and mutual fund investment products to individuals, partnerships, corporations, institutions and municipalities.
Lebanon Citizens is not dependent upon any one significant customer or specific industry. Business is not seasonal to any material degree.
The address of the main office of Lebanon Citizens is 2 North Broadway, Lebanon, Ohio 45036; telephone (513) 932-1414. Its primary market area encompasses portions of Warren, Butler, Clinton, Clermont and Hamilton Counties.
Dakin is a corporation organized under the laws of Ohio and has been an independent insurance agency in Lebanon, Ohio since 1876. Its primary office is at 24 East Mulberry Street, Lebanon, Ohio 45036; telephone (513) 932-4010. Since the acquisition date, Dakin has opened additional offices in Lebanon Citizens Columbus Avenue, Waynesville, Springboro, Maineville, and Goshen offices. Dakin also opened an office at Lebanon Citizens Wilmington Office during January, 2002. Dakin is engaged in selling and servicing personal and commercial insurance products and annuity products and is regulated by the Ohio Department of Insurance.
Competition
Lebanon Citizens faces strong competition both in making loans and attracting deposits. The deregulation of the banking industry and the wide spread enactment of state laws that permit multi-bank holding companies as well as the availability of nationwide interstate banking has created a highly competitive environment for financial services providers. Lebanon Citizens competes with other national and state banks, savings and loan associations, credit unions, finance companies, mutual funds, insurance companies, brokerage and investment banking companies and other financial intermediaries operating in its market and elsewhere, many of whom have substantially larger financial and managerial resources.
Lebanon Citizens seeks to minimize the competitive effect of other financial corporations through a community banking approach that emphasizes direct customer access to Lebanon Citizens' president and other officers in an environment conducive to friendly, informed and courteous personal services. Management believes that Lebanon Citizens is well positioned to compete successfully in its primary market area. Competition among financial institutions is based upon interest rates offered on deposit accounts, interest rates charged on loans and other credit and service charges, the quality and scope of the services rendered, the convenience of the banking facilities and, in the case of loans to commercial borrowers, relative lending limits.
Management believes the commitment of Lebanon Citizens to personal service, innovation, and involvement in the communities and primary market areas it serves, as well as their commitment to quality community banking service, are factors that contribute to its competitive advantage.
Dakin competes with numerous other independent and exclusive insurance agencies (an exclusive agent sells for only one insurance company) and with insurance companies that sell direct to individuals and businesses without using agents. Dakin competes by representing high quality insurance companies, providing personalized and responsive service to its clients, and providing convenient office locations.
Supervision and Regulation
LCNB, as a financial holding company, is regulated under the Bank Holding Company Act of 1956, as amended (the "Act"), and is subject to the supervision and examination of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"). The Act requires the prior approval of the Federal Reserve Board for a bank or financial holding company to acquire or hold more than a 5% voting interest in any bank and restricts interstate banking activities.
On September 29, 1994, the Act was amended by the Interstate Banking and Branch Efficiency Act of 1994, which authorizes interstate bank acquisitions anywhere in the country, effective one year after the date of enactment, and interstate branching by acquisition and consolidation, effective June 1, 1997, in those states that have not opted out by that date.
The Gramm-Leach Act, which amended the Bank Holding Company Act of 1956 and other banking related laws, was signed into law on November 12, 1999. The Gramm-Leach Act repealed certain sections of the Glass-Steagall Act and substantially eliminated the barriers separating the banking, insurance, and securities industries. Effective March 11, 2000, qualifying bank holding companies could elect to become financial holding companies. Financial holding companies have expanded investment powers, including affiliating with securities and insurance firms and engaging in other activities that are financial in nature or incidental to such financial activity or complementary to a financial activity. The Gramm-Leach Act defines financial in nature to include:
a. securities underwriting, dealing, and market making; b. sponsoring mutual funds and investment companies; c. insurance underwriting and agency; d. merchant banking activities; and e. other activities that the Federal Reserve Board, in consultation with and subject to the approval of the Treasury Department, determines are financial in nature.
Financial holding companies may commence the activities listed above or acquire a company engaged in any of those activities without additional approval from the Federal Reserve. Notice of the commencement or acquisition must be provided the Federal Reserve within thirty days of the start of the activity. Sixty days advance notice is required before the start of any activity that is complementary to a financial activity.
LCNB and Lebanon Citizens are subject to an extensive array of banking laws and regulations that are intended primarily for the protection of the customers and depositors of LCNB's subsidiaries rather than holders of LCNB's securities. These laws and regulations govern such areas as permissible activities, loans and investments, rates of interest that can be charged on loans and reserves. LCNB and Lebanon Citizens also are subject to general U.S. federal laws and regulations and to the laws and regulations of the State of Ohio. Set forth below are brief descriptions of selected laws and regulations applicable to LCNB and Lebanon Citizens.
Lebanon Citizens is subject to the provisions of the National Bank Act. Lebanon Citizens is subject to primary supervision, regulation and examination by the Office of the Comptroller of the Currency (OCC). Lebanon Citizens is also subject to the rules and regulations of the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation (FDIC). Under the Bank Holding Company Act of 1956, as amended, and under Regulations of the Federal Reserve Board pursuant thereto, a bank or financial holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with the extension of credit.
LCNB and Lebanon Citizens are also subject to the state banking laws of Ohio. Ohio adopted nationwide reciprocal interstate banking effective October, 1988. However, banking laws of other states may restrict branching of banks to other counties within the state and acquisitions or mergers involving banks and bank holding companies located in other states. Additionally, Dakin Insurance Agency, Inc. is subject to State of Ohio insurance regulations and rules and its activities are regulated by The State of Ohio Department of Insurance.
The Financial Reform, Recovery and Enforcement Act of 1989 (FIRREA) provides that a holding company and its controlled insured depository institutions are liable for any loss incurred by the Federal Deposit Insurance Corporation in connection with the default of any FDIC assisted transaction involving an affiliated insured bank or savings association.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) covers an expanse of banking regulatory issues. FDICIA deals with the recapitalization of the Savings Association Insurance Fund, with deposit insurance reform including requiring the FDIC to establish a risk-based premium assessment system with a number of other regulatory and supervisory matters. Lebanon Citizens will be required to make payments for the servicing of obligations of the Financing Corporation ("FICO") issued in connection with the resolution of savings and loan associations, so long as such obligations remain outstanding.
Noncompliance to laws and regulations by bank holding companies and banks can lead to monetary penalties and/or an increased level of supervision or a combination of these two items. Management is not aware of any current instances of noncompliance to laws and regulations and does not anticipate any problems maintaining compliance on a prospective basis. Recent regulatory inspections and examinations of LCNB Corp and Lebanon Citizens have not disclosed any significant instances of noncompliance. The minor instances of noncompliance detected during these inspections and examinations were promptly corrected by Management and no action was taken by regulators against LCNB or Lebanon Citizens.
The earnings and growth of LCNB are affected not only by general economic conditions, but also by the fiscal and monetary policies of the federal government and its agencies, particularly the Federal Reserve Board. Its policies influence the amount of bank loans and deposits and the interest rates charged and paid thereon and thus have an effect on earnings. The nature of future monetary policies and the effect of such policies on the future business and earnings of LCNB and Lebanon Citizens cannot be predicted.
A substantial portion of LCNB's cash revenues is derived from dividends paid by Lebanon Citizens. These dividends are subject to various legal and regulatory restrictions.
Employees
As of December 31, 2001, LCNB, Lebanon Citizens, and Dakin employed 254 employees. LCNB is not a party to any collective bargaining agreement. Management considers its relationship with its employees to be very good. Employee benefits programs are considered by Management to be competitive with benefits programs provided by other financial institutions and major employers within Lebanon Citizens' market area.
Availability of Financial Information
LCNB files unaudited quarterly financial reports under Form 10-Q and annual financial reports under Form 10-K with the Securities and Exchange Commission (SEC). Copies of these reports may be obtained in the shareholder information section of Lebanon Citizens web site, www.lcnb.com, or by writing to:
Steve P. Foster Executive Vice President, CFO LCNB Corp. 2 N. Broadway P.O. Box 59 Lebanon, Ohio 45036
Financial reports and other materials filed by LCNB with the SEC may also be read and copied at the SECs Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained from the SEC by calling 1-800-SEC-0330. The SEC also maintains an internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding registrants that file reports electronically, as LCNB does.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
LCNB and its subsidiaries do not have any offices located in foreign countries and have no foreign assets, liabilities or related income and expense for the years presented.
STATISTICAL INFORMATION
The following tables and certain tables appearing in Item 7, Managements Discussion and Analysis, present additional statistical information about LCNB Corp. and its operations and financial condition. They should be read in conjunction with the consolidated financial statements and related notes and the discussion included in Item 7, Managements Discussion and Analysis, and Item 7A, Quantitative and Qualitative Disclosures about Market Risk.
Distribution of Assets, Liabilities and Shareholders' Equity; Interest Rates and Interest Differential
The table presenting an average balance sheet, interest income and expense, and the resultant average yield for average interest-earning assets and average interest-bearing liabilities is included in Item 7, Managements Discussion and Analysis.
The table analyzing changes in interest income and expense by volume and rate is included in Item 7, Managements Discussion and Analysis.
Investment Portfolio
Excluding holdings in U.S. Treasury securities and U.S. Government Agencies, there were no investments in securities of any one issuer that exceeded 10% of LCNBs consolidated shareholders equity at December 31, 2001.
Loan Portfolio
Risk Elements
The accrual of interest on impaired loans is discontinued when there is a clear indication that the borrower's cash flow may not be sufficient to meet payments as they become due. Subsequent cash receipts on non-accrual loans are recorded as a reduction of principal, and interest income is recorded once principal recovery is reasonably assured. The current year's accrued interest on loans placed on non-accrual status is charged against earnings. Previous years' accrued interest is charged against the allowance for loan losses.
There were no nonaccrual or restructured loans at December 31, for each of the years ended 1997 through 2001. Interest income that would have been recorded in each of the years 1997 through 2001 if loans on nonaccrual status at various times during the respective years had been current and in accordance with their original terms was not material. For each of the years ended December 31, 1997 through 2001, the recorded investments in loans for which impairment has been recognized in accordance with SFAS Statement No. 114 was not material. LCNB is not committed to lend additional funds to debtors whose loans have been modified to provide a reduction or deferral of principal or interest because of deterioration in the financial position of the borrower.
Summary of Loan Loss Experience
The table summarizing the activity relating to the allowance for loan losses is included in Item 7, Management's Discussion and Analysis.
This allocation is made for analytical purposes. The total allowance is available to absorb losses from any category of the portfolio. The allowance allocated to the commercial and consumer categories has increased over the five year period due to the increase in outstandings in these loan categories which, by nature, have greater risk elements.
Deposits
The statistical information regarding average amounts and average rates paid for the deposit categories is included in the "Distribution of Assets, Liabilities and Shareholders' Equity" table included in Item 7, Managements Discussion and Analysis.
Return of Equity and Assets
The statistical information regarding the return on assets, return on equity, dividend payout ratio and equity to assets ratio is presented in Item 6, Selected Financial Data.
Item 2.
Item 2. Properties
Dakin owns its main office at 20 & 24 East Mulberry Street, Lebanon, Ohio 45036. Excess space in this office is leased to third parties. Dakins six other offices are located in Lebanon Citizens branch offices.
Item 3.
Item 3. Legal Proceedings
Except for routine litigation incident to their businesses, LCNB and its subsidiaries are not a party to any material pending legal proceedings and none of their property is the subject of any such proceedings.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
None
PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
LCNB had approximately 592 registered holders of its common stock as of December 31, 2001. The number of shareholders includes banks and brokers who act as nominees, each of whom may represent more than one shareholder.
LCNB common stock is not traded in an established public market. Several market-makers facilitate trading of shares. Trade prices for shares of LCNB stock, reported through registered securities dealers, are set forth below. Trades have occurred during the period without the knowledge of LCNB. The trades of which LCNB is aware from the market makers in the stock are those outlined. The prices given are interdealer without retail markups, markdown or commissions.
It is expected that LCNB will continue to pay dividends on a similar schedule, to the extent permitted by business and other factors beyond management's control.
Item 6.
Item 6. Selected Financial Data
Item 7.
Item 7. Management's Discussion and Analysis
Introduction
The following is management's discussion and analysis of the financial condition and results of operations of LCNB. It is intended to amplify certain financial information regarding LCNB and should be read in conjunction with the Consolidated Financial Statements and related Notes and the Financial Highlights contained in the 2001 Annual Report to Shareholders.
Comparative Financial Information
Effective May 18, 1999, Lebanon Citizens was reorganized into a one-bank holding company structure. Prior to that date, the financial information presented represents the assets, liabilities and operations of Lebanon Citizens. Comparative earnings per share information is presented on pro forma basis.
On April 11, 2000 LCNB issued 15,942 shares of common stock in exchange for all outstanding shares of Dakin Insurance Agency, Inc. (Dakin). On that date, Dakin merged with and into an interim subsidiary of LCNB. As a result of the merger, Dakin became a wholly owned subsidiary of LCNB. The merger was accounted for as a pooling-of-interests and, accordingly, all financial statements presented herein have been restated to include the financial position and results of operations of Dakin.
Forward Looking Statements
Certain matters disclosed herein may be deemed to be forward-looking statements that involve risks and uncertainties, including regulatory policy changes, interest rate fluctuations, loan demand, loan delinquencies and losses, and other risks. Actual strategies and results in future time periods may differ materially from those currently expected. Such forward- looking statements represent management's judgment as of the current date. LCNB disclaims, however, any intent or obligation to update such forward- looking statements.
Net Income
LCNB earned $6,067,000 in 2001 compared to $5,240,000 in 2000. Earnings per share were $3.43, a 16.27% or $0.48 per share increase from 2000. Performance ratios for 2001 included a return on average assets of 1.30% and a return on average equity of 12.50% compared to ratios of 1.17% and 11.84%, respectively, for 2000.
LCNB earned $5,240,000 in 2000 compared to $5,575,000 in 1999. Earnings per share were $2.95, a 6.05% or $0.19 per share decline from 1999. Performance ratios for 2000 included a return on average assets of 1.17% and a return on average equity of 11.84% compared to ratios of 1.29% and 13.01%, respectively, for 1999.
Net Interest Income
The amount of net interest income earned by LCNB is influenced by the dollar amount (volume) and mix of interest earning assets and interest bearing liabilities and the rates earned or paid on each. The following table presents, for the years indicated, the distribution of average assets, liabilities and shareholders' equity, as well as the total dollar amounts of interest income from average interest earning assets and the resultant yields on a fully taxable equivalent basis, and the dollar amounts of interest expense and average interest-bearing liabilities and the resultant rates paid.
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 years indicated. 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.
2001 vs. 2000. Tax equivalent interest income increased $80,000 due to an increase of $19.8 million in average interest-earning assets, largely offset by a 35 basis point (a basis point equals 0.01%) decline in the average rate earned. Most of the increase in average interest-earning assets was in the loan portfolio, which grew $23.0 million on an average basis even though the consolidated balance sheet shows total loans at December 31, 2001 were $3.3 million less than at December 31, 2000. A significant influence on the average loan balance for 2001 was a $42.8 million increase in loans during 2000. See the Assets section of this Discussion for more information on the loan portfolio. The average rate earned decreased primarily because of a general market wide decrease in interest rates.
Interest expense decreased $1,582,000 because of a 60 basis point decrease in the average rate paid for deposits and borrowings, partially offset by a $12.5 million increase in average interest-bearing liabilities. The decrease in average rates paid was also due to a general decline in market rates during 2001. Most of the increase in average interest-bearing liabilities was in average savings deposits, which increased $12.3 million, and in average long term debt, which increased $4.2 million. Management believes that, due to the current declining rate economic environment, investors are reducing long-term investments and placing the funds in highly liquid, short- term instruments. This means much of the recent growth in savings 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. Management also borrowed $6.0 million from the Federal Home Loan Bank during 2001 in an attempt to lock-in some long-term funding at current, historically low, market rates.
The net interest margin increased from 4.11% during 2000 to 4.30% during 2001 because of the 60 basis point decrease in average rates for interest bearing liabilities, partially offset by the 35 basis point decrease in average rates for interest earning assets.
2000 vs. 1999. Tax equivalent net interest income increased $25,000, or 0.15%, from 1999 to 2000. The net interest margin on a fully taxable equivalent basis (FTE) decreased from 4.23% in 1999 to 4.11% in 2000. This 12 basis point decrease was due in part to a 65 basis point increase in the cost of average interest-bearing liabilities, partially offset by a 41 basis point increase in the yield on average interest-earning assets. The increase in the cost of average interest-bearing liabilities resulted from a general increase in market rates and a $6 million borrowing from the Federal Home Loan Bank. The increase in the yield on average interest-earning assets is due to the same increase in market rates and to a shift of funds from investment securities to the higher earning loan portfolio. The loan-to- deposit ratio at December 31, 2000 and 1999 was 83.70% and 73.45%, respectively. An increase in average interest-earning assets of $13.2 million to $415.5 million in 2000 also contributed to the increase in net interest income. The increase was primarily attributable to increases in average commercial and residential real estate loans.
Provisions 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. In addition to historic charge-off percentages, factors taken into consideration to determine the adequacy of the allowance for credit losses include the nature, volume and consistency of the loan portfolio, overall portfolio quality, review of specific problem loans and current economic conditions that may affect borrowers ability to pay. The following table presents the total loan provision and the other changes in the allowance for loan losses for the years 1997 through 2001.
The allowance for loan losses of $2.0 million is 0.61% of total loans at December 31, 2001, compared to $2.0 million or 0.61% of total loans at December 31, 2000, and $2.0 million or 0.70% of total loans at December 31, 1999. The $63,000 increase in consumer loans charged off, net of recoveries, in 1999 over 1998 is attributable, in part, to the adoption of a new uniform charge-off policy in 1999 for consumer, credit card, and home mortgage loans as mandated by the Federal Financial Institution's Examination Council for all banks and thrifts. It includes a requirement to charge off open-end credit at 180 days delinquency and closed-end credit at 120 days delinquency.
Non-Interest Income
2001 vs. 2000. Non-interest income increased $312,000, or 7.09%, to $4,712,000 in 2001 from $4,400,000 in 2000. The increase was primarily due to a $240,000 increase in service charges and fees and a $297,000 increase in insurance agency income, partially offset by a $250,000 decrease in trust income.
The increase in service charges and fees from 2000 to 2001 was due to increases in return check fees and check card income. Lebanon Citizens increased the returned check fee from $20 to $25 in December, 2000. Check card fees increased primarily because a greater number of cards were outstanding during 2001 than during 2000.
The increase in insurance agency income is primarily 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 in 2001 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 commissions received during 2002 to a minimal level.
Trust fee income decreased in 2001 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.
2000 vs. 1999. Non-interest income increased $30,000, or 0.69%, to $4,400,000 in 2000 from $4,370,000 in 1999. The increase was primarily due to a $205,000 increase in trust income, partially offset by a $50,000 decrease in service charges and fees and a $128,000 decrease in insurance agency income.
The trust fee income increased in 2000 due to an increase in estate fee income, partially offset by a decrease in the market value of assets under management, on which fees are based.
The decrease in service charges and fees from 1999 to 2000 was due to a $215,000 reduction in merchant credit card processing fees resulting from the exiting of the business in the fourth quarter of 1999. Lebanon Citizens outsourced these services in 1999 due to declining margins and now functions as a referral conduit for merchant credit card business. This decrease was partially offset by:
a. a $65,000 increase in VISA check card fee income resulting from continued growth in both the usage and number of cardholders, and b. increases in deposit account related fees.
The decrease in insurance agency income is primarily due to a large contingency commission Dakin recognized during the first quarter of 1999, which did not recur during 2000.
Non-Interest Expense
2001 vs. 2000. Non-interest expense increased $821,000, or 6.28%, during 2001 as compared to 2000. This increase was primarily due to:
a. a $433,000, or 7.83%, increase in salaries and wages, b. a $162,000, or 11.45%, increase in pension and other employee benefits, c. a $102,000, or 25.06% increase in state franchise taxes, and d. a $105,000, or 3.45%, increase in other non-interest expense.
Salaries and wages increased as a result of normal salary and wage increases, an increase in the number of employees, and increased commissions paid Dakins agents because of the increase in the volume of policies written. In addition, a portion of the pay received by LCNB officers and employees is based on corporate earnings. Since earnings during 2001 were greater than during 2000, a higher amount of incentive pay was paid to employees.
Pension and other employee benefits increased primarily because of an increase in pension expense recognized. Other benefits, including social security and medicare matching and health care costs, also increased.
A banks state franchise taxes are based on net worth, so the increase in state franchise taxes reflects growth in shareholders equity.
The increase in other non-interest expense was due in part to:
a. a $145,000 increase in ATM expenses resulting from continued expansion in the number of ATMs and an increase in the number of ATM transactions processed, b. a $67,000 increase in office supplies expense, and c. a $36,000 increase in personal computer banking expense primarily due to increased usage of LCNB On-Line, the computer banking feature available in Lebanon Citizens website (www.lcnb.com).
These increases were partially offset by:
a. a $60,000 decrease in credit card expense primarily due to a change in the processing firm, b. a $77,000 decrease in legal and other professional fees caused primarily by the absence of fees paid during 2000 for services relating to the acquisition of Dakin, and c. the absence of computer consulting fees totaling $34,000.
Depreciation on furniture and equipment, which is included in equipment expense, increased $56,000 and depreciation on bank premises, which is included in occupancy expense, increased $46,000. These increases were due to the recent construction of new offices and facilities. During 2000 LCNB constructed new offices in Goshen and Oxford and extensively remodeled the Columbus Avenue office in Lebanon. An electronic branch (a drive-up, stand- alone ATM) was also constructed on Peck Boulevard in Hamilton. During 2001 a new office was constructed on Washington Boulevard in Hamilton and an electronic branch was constructed in Harveysburg.
On June 29, 2001, LCNB signed a contract with Jack Henry & Associates for replacement of LCNBs core processing system, including computer hardware and software. Conversion from the current system to the new system is tentatively scheduled for late 2002 through early 2003. Management believes the new system will allow LCNB to enhance operating efficiencies and improve customer service. 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. 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 $129,000 during 2002 and $31,000 during 2003 and will be expensed as incurred.
2000 vs. 1999. Non-interest expense increased $419,000, or 3.31%, in 2000 from 1999. This increase was primarily due to:
a. a $237,000, or 3.53%, increase in labor costs including pension and other employee benefits, b. a $95,000, or 17.79%, increase in equipment expenses, c. a $90,000, or 9.43%, increase in occupancy expenses, and d. a $222,000, or 7.87%, increase in other non-interest expense.
Labor costs increased as a result of normal increases in salaries and wages and increases in pension and health insurance costs.
The increase in equipment expense is primarily due to depreciation recognized on new furniture and equipment purchased for new and remodeled offices. The increase in occupancy expense reflects increased costs due to new and remodeled offices and an increase in rent expense for the leased offices.
The increase in other non-interest expense was due in part to:
a. a $64,000 increase in ATM expenses resulting from an expansion in the number of ATMs and an increase in the number of ATM transactions processed, b. attorney fees of $46,000 relating to the acquisition of Dakin Insurance Agency, c. a rate increase totaling $35,000 in Federal Deposit Insurance Corporation premiums, d. a $75,000 increase in telephone expense primarily due to a telephone system upgrade installed during 2000 and to an increased number of telephone lines needed to serve new ATMs, and e. consulting fees totaling $34,000 relating to the selection of a new computer system.
These increases were partially offset by a $152,000 decline in merchant credit card related processing and interchange expenses due to Lebanon Citizens exiting of the merchant credit card business in late-1999 and by certain printing and supply expense control initiatives established during 2000.
Income Taxes
LCNB's effective tax rates for the years ended December 31, 2001, 2000, and 1999 were 28.68%, 28.52%, and 29.41%, respectively. The difference between the statutory rate of 34.00% and the effective tax rate is primarily due to tax-exempt interest income.
Assets
2001 vs. 2000. Total assets increased $29.4 million, or 6.53%, from December 31, 2000 to December 31, 2001. This increase was primarily due to a $20.0 million increase in federal funds sold and a $16.1 million increase in securities available for sale, partially offset by a $4.0 million decrease in cash and due from banks and a $3.3 million decrease in loans.
The decrease in loans during 2001 can be attributed to:
a. refinancing activity on residential mortgage loans because of the general decline in interest rates, combined with b. the sale of a large majority of the fixed rate residential loans originated during 2001 to the Federal Home Loan Mortgage Corporation (FHLMC).
Approximately $13.4 million of residential real estate loans were sold to FHLMC during 2001, while no loans were sold during 2000. The sales and refinancing payoffs contributed to a $19.3 million decline in residential real estate loans. Management began selling the loans after determining that current, historically low market rates for residential loans were not profitable in the long run. Offsetting the decline in residential loans was a $17.5 million increase in the commercial loan portfolio.
Since management was not able to invest deposit growth and borrowing increases in loan growth during 2001, the funds were invested in federal funds sold, which is a short-term investment and readily available, and in the securities portfolio. All of LCNBs investment securities are classified available for sale and can be readily sold if the funds are needed to support loan growth in the future.
Premises and equipment increased $1.1 million, net of $898,000 in depreciation expense, from December 31, 2000 to December 31, 2001. Expenditures for 2001 included approximately $1.2 million for costs associated with the new Hamilton office and the electronic branch in Harveysburg.
At December 31, 2001 Lebanon Citizens owned all but two of its branches. The Otterbein and South Lebanon branches were leased under multi-year operating leases. The current Otterbein lease expires in July, 2005, and the South Lebanon lease expires in July, 2006. Both leases contain renewal options. The Oxford office is built on leased land. This lease expires in July, 2059 and does not include renewal options. Lebanon Citizens has a right of first refusal if the land is sold during the term of the lease.
2000 vs. 1999. Total assets increased $11.8 million, or 2.68%, from December 31, 1999 to December 31, 2000. This increase was primarily due to a $42.8 million, or 15.00%, increase in loans, partially offset by a $22.4 million, or 21.36%, decrease in securities available for sale.
The loan increase from December 31, 1999 to December 31, 2000 resulted primarily from a $10.1 million increase in commercial and industrial loans, a $22.9 million increase in residential real estate loans, and a $4.5 million increase in consumer loans. The growth in residential real estate and commercial loans resulted from competitively priced products and focused officer-calling efforts in the Hamilton and Oxford markets as well as the Warren County offices. All residential real estate loans originated during 2000 were kept in Lebanon Citizens portfolio. This compares to $2.4 million and $11.6 million in loans originated and sold to the Federal Home Loan Mortgage Corporation (Freddie Mac) during 1999 and 1998, respectively. Consumer loans increased primarily through concentrated efforts to originate indirect auto and other loans through dealers.
Securities decreased due to a shifting of assets from the securities portfolio to the higher yielding loan portfolio. Approximately $5.8 million of securities were sold in 2000, resulting in a $12,000 realized gain. Proceeds were primarily used to fund the continued loan growth.
Premises and equipment increased $2.3 million, net of $796,000 in depreciation expense, from December 31, 1999 to December 31, 2000. Expenditures for 2000 included approximately $2.4 million for costs associated with new offices in Goshen and Oxford, extensive remodeling of the Columbus Avenue office in Lebanon, and a new drive-up ATM located in Hamilton.
Deposits
2001 vs. 2000. Total deposits of $414.8 million at December 31, 2001, increased $20.0 million, or 5.06%, from December 31, 2000. Much of the growth was in the savings category, which increased $14.5 million during the year. Management believes this reflects investor preference for short-term, highly liquid investments during the current economic cycle. Demand deposits increased $7.4 million from $51.7 million at December 31, 2000 to $59.1 million at December 31, 2001. The balance at December 31, 2001 was unusually high and by mid-January, 2002, this balance had returned to a more typical average balance of approximately $55.6 million.
The only deposit category that did not increase during 2001 was money fund deposits, which decreased $12.9 million during the year. The decrease 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 customers choice of several different non-bank owned mutual funds or, alternatively, a Lebanon Citizens savings product that is grouped with the money fund deposits category. After considering the declining rates LCNB was able to earn on its overnight federal fund investments and LCNBs 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.
2000 vs. 1999. Total deposits of $394.8 million at December 31, 2000 increased $3.2 million, or 0.82%, from December 31, 1999. Demand and NOW deposits decreased $6.2 million from December 31, 1999 to December 31, 2000, money fund deposits increased $19.4 million, and savings deposits increased $6.0 million. The increase in money fund deposits relates to the corporate sweep checking account product described above. The Lebanon Citizens savings product alternative was first introduced during the third quarter, 2000. Several large account holders chose the new deposit product, which accounted for most of the increase in the money fund deposits category. IRA deposits remained relatively constant from December 31, 1999 to December 31, 2000. Certificates greater than $100,000 decreased by $9.1 million due to managements decision not to bid on public fund deposits that matured during the final quarter of 2000. In making this decision, management considered Lebanon Citizens liquidity position and the rates that would be required to maintain the deposits. Other time certificates declined by $7.0 million as Lebanon Citizens continued to allow its higher cost retail deposit products to run-off.
Liquidity
Liquidity is the ability to have funds available at all times to meet the commitments of LCNB. These commitments may include paying dividends to shareholders, funding new loans for borrowers, funding withdrawals by depositors, paying general and administrative expenses, and funding capital
expenditures. Sources of liquidity include growth in deposits, principal payments received on loans, proceeds from the sale of loans, the sale or maturation of investment securities, cash generated by operating activities, and the ability to borrow funds. Management closely monitors the level of liquid assets available to meet ongoing funding requirements. 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 during the past year as a result of current liquidity levels.
Commitments to extend credit at December 31, 2001, totaled $56.7 million and standby letters of credit totaled $6.4 million and are more fully described in Note 10 to LCNBs Financial Statements. Since many commitments to extend credit may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.
A contract with Jack Henry & Associates for replacement of LCNBs core processing system, including computer hardware and software, is tentatively expected to cost $1,086,000. The cost of converting data files from the current to the new system and of training employees on the new system are expected to total an additional $129,000 during 2002 and $31,000 during 2003. LCNB also plans to remodel several back-office areas of the main office during the first quarter, 2002; preliminary cost estimates for this project total approximately $195,000. As of December 31, 2001, LCNB had no other material commitments for capital expenditures.
Total deposits grew $20.0 million or 5.06% during 2001. The liquidity of LCNB is enhanced by the fact that 88.40% of total deposits at December 31, 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. An additional source of funding is borrowings from the Federal Home Loan Bank (FHLB). Total borrowings from the FHLB at December 31, 2001 were $12.0 million. The total remaining borrowing capacity from the FHLB at that date was approximately $81 million.
Liquid assets include cash, federal funds sold and securities available for sale. Except for investments in the stock of the Federal Reserve Bank and FHLB, all of LCNBs investment portfolio is classified as available-for- sale and can be readily sold to meet liquidity needs. At December 31, 2001, LCNBs liquid assets amounted to $132.8 million or 27.65% of total gross assets, up from $100.8 million or 22.34% of total gross assets at December 31, 2000. The primary reasons for the increase were increases in the amount of federal funds sold and securities available for sale.
Capital Resources
LCNB and Lebanon Citizens are required by banking regulators to meet certain minimum levels of capital adequacy. These are expressed in the form of certain ratios. Capital is separated into Tier I capital (essentially shareholders' equity less goodwill and other intangibles) and Tier II capital (essentially the allowance for loan losses limited to 1.25% of risk-weighted assets). The first two ratios, which are based on the degree of credit risk in Lebanon Citizens' assets, provide for weighting assets based on assigned risk factors and include off-balance sheet items such as loan commitments and stand-by letters of credit. The ratio of Tier 1 capital to risk-weighted assets must be at least 4.00% and the ratio of Total capital (Tier 1 capital plus Tier 2 capital) to risk-weighted assets must be at least 8.00%. 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 3.00%. A summary of the regulatory capital of LCNB and Lebanon Citizens at December 31 follows:
The FDIC, the insurer of deposits in financial institutions, has adopted a risk-based insurance premium system based in part on an institution's capital adequacy. Under this system, a depository institution is required to pay successively higher premiums depending on its capital levels and its supervisory rating by its primary regulator. It is management's intention to maintain sufficient capital to permit Lebanon Citizens to maintain a "well capitalized" designation (the FDIC's highest rating).
On April 17, 2001, LCNBs 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 455 shares were purchased from eight 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. Through December 31, 2001, 7,565 shares had been purchased under this program.
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 LCNBs 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 4,977 shares had been purchased under this program at December 31, 2001. An additional 41,920 shares were purchased in January, 2002.
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 has not been 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 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.
LCNBs intangible assets at December 31, 2001 are classified as intangible assets other than goodwill. Approximately $3.6 million of the intangibles recorded on the consolidated balance sheet at December 31, 2001 represents the remaining unamortized intangible related to LCNBs 1997 acquisition of three branch offices from another bank. The intangible is being amortized over ten years in accordance with SFAS No. 72, Accounting for Certain Acquisitions of Banking or Thrift Institutions, which was not superseded by SFAS No. 142. During December, 2001, the FASB announced it will undertake a limited-scope project to reconsider part of the guidance in SFAS No. 72. Issuance of a final statement is not expected until the fourth quarter of 2002.
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. This statement is not expected to have a material impact on LCNBs statements of financial condition or results of operations.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risk for LCNB is primarily interest rate risk. LCNB attempts to mitigate this risk through asset/liability management strategies designed to decrease the vulnerability of its earnings to material and prolonged changes in interest rates. LCNB does not use derivatives such as interest rate swaps, caps or floors to hedge this risk. LCNB has not entered into any market risk instruments for trading purposes. Lebanon Citizens' Asset and Liability Management Committee ("ALCO") primarily uses Interest Rate Sensitivity Gap Analysis, also known as repricing mismatch analysis, for measuring and managing interest rate risk.
Interest Rate Sensitivity Gap Analysis
A traditional gap analysis provides a point-in-time measurement of the relationship between the amounts of interest rate sensitive assets and liabilities in a given time period. An asset or liability is interest rate sensitive within a specific time period if it will mature or reprice within that time period. If liabilities mature or reprice more quickly or to a greater extent than assets, net interest income would tend to decrease during periods of rising interest rates but increase during periods of falling interest rates. Conversely, if liabilities mature or reprice more slowly or to a lesser extent than assets, net interest income would tend to increase during periods of rising interest rates but decrease during periods of falling interest rates. ALCO strives to maintain a range for the relationship of rate sensitive assets to rate sensitive liabilities for gap analysis purposes of from 75 to 125 percent for the one-year and two- to four-year periods.
The following table reflects LCNBs gap analysis at December 31, 2001. The amounts reported in the table are the principal cash flows of rate sensitive assets and liabilities by expected maturity or repricing timeframe. Also presented is the related weighted average interest rate. Fixed rate real estate mortgage loans and mortgage-backed securities are allocated to the various maturity/repricing periods based on contractual maturities adjusted for expected prepayments under the current market interest rate environment. Deposit liabilities without contractual maturities such as NOW and savings accounts are allocated to the various repricing periods based on
an analysis of forecasted account run-off that takes into consideration the relatively stable nature of these core deposits. The gap analysis indicates that LCNBs earnings are sensitive to the repricing of liabilities in the first year, sensitive to repricing of assets in the second through the fourth year, and asset sensitive thereafter. The aggregate ratio of rate sensitive assets to rate sensitive liabilities is 85.94% for the first year and 152.87% for years two through four. With the current relatively low market interest rate environment, management believes the ratios for the one year and two to four year time frames do not expose LCNBs net interest income to significant risk.
Item 8.
Item 8. Financial Statements and Supplementary Data
The Financial Statements required by this item are incorporated herein by reference to pages 15 through 24 of the Registrants 2001 LCNB Corp. Annual Report attached to this filing as Exhibit 13.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures. - None
PART III
Portions of the Proxy Statement included in the Notice of Annual Meeting of Shareholders to be held April 16, 2002, dated March 16, 2002, are incorporated by reference into Part III.
Item 10.
Item 10. Directors and Executive Officers of the Registrant
The information contained in the Notice of Annual Meeting of Shareholders and Proxy Statement (dated March 16, 2002), relating to Directors and Executive Officers of the Registrant, is incorporated herein by reference.
Item 11.
Item 11. Executive Compensation
The information contained in the Notice of Annual Meeting of Shareholders and Proxy Statement (dated March 16, 2002), relating to Compensation of Directors and Executive Officers, is incorporated herein by reference.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information contained in the Notice of Annual Meeting of Shareholders and Proxy Statement (dated March 16, 2002), relating to Section 16(a) Beneficial Ownership Reporting Compliance is incorporated herein by reference.
Item 13.
Item 13. Certain Relationships and Related Transactions
The information contained in the Notice of Annual Meeting of Shareholders and Proxy Statement (dated March 16, 2002), relating to Certain Relationships and Related Transactions, is incorporated herein by Reference.
PART IV
Item 14.
Item 14. Exhibits, Financial Statements and Reports on 8-K
1. Financial Statements
INDEPENDENT AUDITORS REPORT FINANCIAL STATEMENTS Consolidated Balance Sheets Consolidated Statements of Income Consolidated Statements of Shareholders Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements
2. Financial Statement Schedules
None
3. Exhibits required by Item 601 Regulation S-K.
(a)Exhibit No. Exhibit Description ---------- ------------------- 3.1 Articles of Incorporation of LCNB Corp.(1) 3.2 Code of Regulations of LCNB Corp.(2)
13 Portions of LCNB Corp. 2001 Annual Report (pages 2-3 and 15-24)
21 LCNB Corp. Subsidiaries
(1) Incorporated by reference to Registrants 1999 Form 10-K, Exhibit 3.1. (2) Incorporated by reference to Registrants Registration Statement on Form S-4, Exhibit 3.2, Registration No. 333-70913.
(b)Reports on Form 8-K
There were no Form 8-Ks filed with the SEC in the fourth quarter of 2001.
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 ---------------------------- President and Chairman of the Board of Directors
February 11, 2002
Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated:
/s/Steve P. Foster /s/James B. Miller - --------------------- --------------------- Steve P. Foster James B. Miller Executive Vice President Director And Chief Financial Officer February 11, 2002 February 11, 2002
/s/David S. Beckett /s/Corwin M. Nixon - --------------------- --------------------- David S. Beckett Corwin M. Nixon Director Director February 11, 2002 February 11, 2002
/s/Robert C. Cropper /s/Kathleen Porter Stolle - --------------------- ------------------------- Robert C. Cropper Kathleen Porter Stolle Director Director February 11, 2002 February 11, 2002
/s/William H. Kaufman /s/Howard E. Wilson - --------------------- ---------------------- William H. Kaufman Howard E. Wilson Director Director February 11, 2002 February 11, 2002
/s/George L. Leasure /s/Marvin E. Young - --------------------- ---------------------- George L. Leasure Marvin E. Young Director Director February 11, 2002 February 11, 2002