LCNB Corp. (NASDAQ:LCNB), a financial holding company headquartered in Lebanon, Ohio, has undergone a remarkable transformation over the past year, driven by two strategic acquisitions that have significantly expanded its scale and market presence. The company's recent financial results showcase the benefits of these transformative transactions, positioning LCNB as one of the largest independent community banks in Ohio.

In the fiscal year ended December 31, 2023, LCNB reported annual net income of $12,628,000, annual revenue of $95,006,000, annual operating cash flow of $20,662,000, and annual free cash flow of $18,056,000. These impressive financial metrics demonstrate the company's ability to generate consistent profitability and strong cash flows, even as it navigates a challenging interest rate environment.

The company's second quarter 2024 results further highlight the impact of its recent acquisitions. For the three months ended June 30, 2024, LCNB reported net income of $925,000, or $0.07 per basic and diluted share, compared to net income of $4,694,000, or $0.42 per basic and diluted share, in the same period of the prior year. The year-over-year decline in net income was primarily due to one-time merger-related expenses and the impact of purchase accounting adjustments associated with the Cincinnati Bancorp, Inc. and Eagle Financial Bancorp, Inc. acquisitions.

Adjusted for these one-time items, LCNB's second quarter 2024 net income was $4,078,000, or $0.29 per basic and diluted share, compared to $5,046,000, or $0.45 per basic and diluted share, in the same period of the prior year. This adjusted net income figure provides a more accurate representation of the company's underlying profitability and the benefits of its recent acquisitions.

Business Overview

LCNB Corp. operates through its wholly-owned subsidiary, LCNB National Bank, which serves customers and communities in Southwest and South-Central Ohio, as well as Northern Kentucky. The bank has a long history of building strong relationships with its customers and communities, offering a comprehensive suite of personal and business banking services, including checking, savings, online banking, lending, wealth management, and trust services.

Recent Developments

The company's recent acquisitions of Cincinnati Bancorp, Inc. and Eagle Financial Bancorp, Inc. have significantly expanded LCNB's geographic footprint and customer base. The Cincinnati Bancorp acquisition, completed in November 2023, added four full-service branch offices in Cincinnati, Ohio, and one in Florence, Kentucky, to LCNB's network. The Eagle Financial Bancorp acquisition, completed in April 2024, added three full-service banking offices in Cincinnati, Ohio, further strengthening the company's presence in the greater Cincinnati market.

These strategic transactions have transformed LCNB into a larger, more diversified financial institution, with a stronger market position and the ability to provide a broader range of products and services to its customers. As of June 30, 2024, LCNB had total assets of $2.37 billion, up 21.6% from $1.95 billion a year earlier, and total assets under management of $4.21 billion, a new record for the company.

Financials

LCNB's financial performance in the second quarter of 2024 was impacted by the integration and one-time costs associated with the Cincinnati Bancorp and Eagle Financial Bancorp acquisitions. Net interest income for the quarter was $15.2 million, up from $14.2 million in the same period of the prior year, driven by an increase in interest income from loans due to a higher volume of average loans outstanding and higher average rates earned on these loans.

However, this increase in net interest income was partially offset by higher average balances in interest-bearing demand and money market deposits, IRA and time certificates, and long-term debt, as well as an increase in the rates paid on these liabilities. LCNB's tax equivalent net interest margin for the second quarter of 2024 was 2.86%, compared to 3.28% in the same period of the prior year.

Non-interest income for the second quarter of 2024 was $4.1 million, up from $3.6 million in the same period of the prior year, primarily due to higher fiduciary income and higher gains on sales of loans. This increase in non-interest income was partially offset by a $843,000 pretax loss on the sale of approximately $48.9 million of below-market rate loans acquired from Cincinnati Federal.

Non-interest expense for the second quarter of 2024 was $17.8 million, compared to $12.1 million in the same period of the prior year. The $5.7 million increase was primarily due to higher personnel and operating expenses, as well as one-time merger-related expenses, associated with the Cincinnati Federal and Eagle acquisitions.

For the six-month period ended June 30, 2024, LCNB reported net income of $2.8 million, or $0.21 per basic and diluted share, compared to $8.9 million, or $0.79 per basic and diluted share, in the same period of the prior year. Adjusted for one-time items, the company's net income for the first half of 2024 was $6.7 million, or $0.49 per basic and diluted share, compared to $9.2 million, or $0.82 per basic and diluted share, in the prior year period.

Asset Quality and Capital Position

LCNB's asset quality remains strong, with total nonperforming loans of $3.0 million, or 0.17% of total loans, as of June 30, 2024, compared to $707,000, or 0.05% of total loans, a year earlier. The year-over-year increase in nonperforming loans was primarily due to one commercial real estate relationship, representing a balance of $2.6 million, which management does not expect to result in a loss.

The company's allowance for credit losses on loans was $11.3 million, or 0.65% of total loans, as of June 30, 2024, compared to $8.0 million, or 0.55% of total loans, a year earlier. LCNB recorded a provision for credit losses of $528,000 in the second quarter of 2024, compared to $30,000 in the same period of the prior year.

LCNB's capital position remains strong, with a total risk-based capital ratio of 10.94% and a Tier 1 leverage ratio of 8.08% as of June 30, 2024. These ratios exceed the well-capitalized thresholds set by federal banking regulators, providing the company with the financial flexibility to support its growth initiatives and continue serving its customers.

Geographic and Product Diversification

LCNB's recent acquisitions have significantly expanded the company's geographic footprint and customer base. As of June 30, 2024, the company had 24 full-service banking offices located in Southwest and South-Central Ohio, as well as Northern Kentucky, up from 19 offices a year earlier.

In addition to its expanded branch network, LCNB has also diversified its product offerings, with a growing wealth management business, increased mortgage lending capabilities, and enhanced cash management services for its commercial customers. These new capabilities, combined with the company's traditional banking services, position LCNB as a comprehensive financial services provider in its markets.

Liquidity

LCNB maintains a strong liquidity position, with a loan-to-deposit ratio of 89.38% as of June 30, 2024. The company's total deposits increased 21.7% year-over-year to $1.94 billion, providing a stable funding source for its lending activities and other operations.

LCNB's capital management strategy focuses on maintaining a well-capitalized position to support its growth initiatives and provide a buffer against potential economic downturns. The company's total risk-based capital ratio of 10.94% and Tier 1 leverage ratio of 8.08% as of June 30, 2024 demonstrate its commitment to prudent capital management.

Outlook

LCNB management remains optimistic about the company's future prospects, citing the successful integration of the Cincinnati Bancorp and Eagle Financial Bancorp acquisitions and the opportunities to cross-sell products and services to a larger customer base. The company expects year-over-year earnings growth to reaccelerate in the fourth quarter of 2024 as it fully realizes the benefits of these transformative transactions.

Risks and Challenges

While LCNB has demonstrated its ability to navigate a challenging interest rate environment, the company faces risks associated with rising rates, including potential margin compression and increased funding costs. Additionally, the integration of the Cincinnati Bancorp and Eagle Financial Bancorp acquisitions, although progressing well, carries inherent execution risks that the company must continue to manage effectively.

Conclusion

LCNB Corp. has undergone a remarkable transformation over the past year, driven by its strategic acquisitions of Cincinnati Bancorp, Inc. and Eagle Financial Bancorp, Inc. These transactions have significantly expanded the company's scale, geographic footprint, and product offerings, positioning LCNB as one of the largest independent community banks in Ohio.

Despite the near-term impact of one-time merger-related expenses, LCNB's underlying financial performance remains strong, with solid net interest income, growing non-interest income, and a well-capitalized balance sheet. As the company continues to integrate its recent acquisitions and leverage its expanded capabilities, we believe LCNB is well-positioned to deliver long-term value for its shareholders.