Business Overview and History
LCNB Corp traces its roots back to 1877 when it was founded as Lebanon Citizens National Bank, serving the local community in Lebanon, Ohio. The company has a rich history of growth and expansion, evolving from a locally-owned bank to a diversified financial services holding company.
In 1982, the bank was reorganized as LCNB Corp, setting the stage for its future development. A significant milestone occurred in 2005 when the company officially changed its name to LCNB Corp to better reflect its transformation into a diversified financial services holding company. This change allowed LCNB to expand its product and service offerings beyond traditional banking to include wealth management, insurance, and other financial solutions.
Throughout its history, LCNB has maintained a strong focus on customer service, community involvement, and prudent risk management. This approach has enabled the company to successfully navigate economic downturns and regulatory changes over the decades. LCNB has also established a track record of consistently paying quarterly cash dividends to shareholders, demonstrating its commitment to delivering value to investors.
The company's growth strategy has included both organic expansion and strategic acquisitions. In November 2023, LCNB completed the acquisition of Cincinnati Bancorp, Inc., which significantly expanded its presence in the Cincinnati market. This acquisition added four full-service branch offices in Cincinnati and one in Florence, Kentucky, to LCNB's network. The successful integration of Cincinnati Bancorp's operations was a crucial challenge that LCNB effectively managed.
Building on this momentum, LCNB further strengthened its Cincinnati-area footprint in April 2024 with the acquisition of Eagle Financial Bancorp, Inc. This strategic move added three more full-service banking offices in Cincinnati to LCNB's growing network. The company focused on carefully integrating Eagle Financial's operations to ensure a smooth transition for both customers and employees.
As of September 30, 2024, LCNB reported total assets of $2.35 billion, an increase of 2.41% compared to the prior year-end. The company's loan portfolio stood at $1.71 billion, relatively flat compared to the end of 2023, as growth from the recent acquisitions was offset by a decline in the residential mortgage loan segment. LCNB's deposit base grew to $1.92 billion, up 5.08% from the end of 2023, driven by organic growth and the integration of the acquired institutions.
Financial Performance and Ratios
LCNB's financial performance has been mixed in recent years, reflecting the challenges faced by the banking industry. For the fiscal year ended December 31, 2023, the company reported net income of $12.63 million, down from $22.13 million in the prior year. This decline was primarily attributable to increased expenses related to the CNNB and EFBI acquisitions, as well as a provision for credit losses of $141,000, compared to a recovery of $141,000 in 2022.
The company's return on assets (ROA) for 2023 was 0.55%, down from 1.16% in 2022, while its return on equity (ROE) decreased from 11.03% to 5.37% over the same period. LCNB's efficiency ratio, a measure of operating expenses as a percentage of revenue, deteriorated from 58.49% in 2022 to 66.71% in 2023, reflecting the higher costs associated with the acquisitions.
For the most recent quarter ended September 30, 2024, LCNB reported revenue of $26.4 million and net income of $4.53 million. The increase in quarterly revenue and net income was primarily due to the acquisition of EFBI on April 12, 2024, and CNNB on November 1, 2023, which expanded LCNB's operations and customer base in the Cincinnati and Northern Kentucky markets.
Liquidity and Solvency
LCNB maintains a strong liquidity position, with cash and cash equivalents totaling $39.37 million as of September 30, 2024, compared to $39.72 million at the end of 2023. The company's loan-to-deposit ratio stood at 89.23% as of the third quarter of 2024, slightly lower than the 94.10% ratio at the end of 2023, indicating ample liquidity to fund loan growth and meet customer deposit needs.
In terms of solvency, LCNB's capital ratios remain well above regulatory requirements. As of September 30, 2024, the bank's Common Equity Tier 1 capital ratio was 9.81%, its Tier 1 capital ratio was 9.81%, and its total risk-based capital ratio was 10.46%. These ratios demonstrate the company's strong capitalization and ability to withstand potential economic and regulatory challenges.
Challenges and Opportunities
LCNB has faced several challenges in recent years, including the impact of the COVID-19 pandemic, rising interest rates, and heightened competition from larger regional and national banks. The pandemic disrupted normal business operations, leading to increased loan loss provisions and lower noninterest income. Additionally, the rapid increase in interest rates has put pressure on the company's net interest margin, as the cost of deposits has risen more quickly than the yield on loans.
However, LCNB has also identified several opportunities to drive future growth. The company's recent acquisitions of CNNB and EFBI have expanded its footprint in the Cincinnati and Northern Kentucky markets, providing access to new customer bases and potential synergies. Additionally, LCNB has been focused on growing its wealth management business, LCNB Wealth Management, which has seen a 15.1% year-over-year increase in assets under management to a record $1.38 billion as of December 31, 2024. This business line provides a stable source of fee income and diversifies the company's revenue streams.
Looking ahead, LCNB's management team has expressed confidence in the company's ability to navigate the current challenges and position the bank for long-term success. The company has implemented strategies to improve efficiency, optimize its balance sheet, and enhance its digital capabilities to better serve its customers in a rapidly evolving banking landscape.
Product Segments and Loan Portfolio
LCNB operates through several key product segments, which contribute to its diversified loan portfolio:
Commercial and Industrial Loans: This segment represents LCNB's lending activities to businesses and professionals, including loans for working capital, inventory financing, and equipment purchases. As of September 30, 2024, the commercial and industrial loan portfolio totaled $119.22 million, representing approximately 6.9% of LCNB's total loan portfolio.
Commercial Real Estate Loans: This segment encompasses lending activities secured by various commercial properties, including retail and office buildings, religious facilities, hotels, and multifamily properties. As of September 30, 2024, the commercial real estate loan portfolio totaled $1.10 billion, representing approximately 64.0% of LCNB's total loan portfolio.
Residential Real Estate Loans: This segment includes loans secured by first or second mortgage liens on one to four-family residential properties, as well as home equity lines of credit. As of September 30, 2024, the residential real estate loan portfolio totaled $460.56 million, representing approximately 26.8% of LCNB's total loan portfolio.
Consumer Loans: This portfolio includes secured and unsecured loans to individuals for personal expenditures. As of September 30, 2024, the consumer loan portfolio totaled $22.11 million, representing approximately 1.3% of LCNB's total loan portfolio.
Agricultural Loans: This segment includes loans for financing agricultural production and equipment purchases. As of September 30, 2024, the agricultural loan portfolio totaled $13.17 million, representing approximately 0.8% of LCNB's total loan portfolio.
Other Loans: This segment primarily consists of overdrafts from transaction deposit accounts. As of September 30, 2024, the other loan portfolio totaled $496,000, representing approximately 0.3% of LCNB's total loan portfolio.
The company's net interest income and net interest margin have been impacted by the higher interest rate environment, with the net interest margin declining from 3.20% for the nine months ended September 30, 2023, to 2.81% for the same period in 2024. LCNB has also reported an increase in the provision for credit losses, from a recovery of $141,000 for the nine months ended September 30, 2023, to a provision of $1.31 million for the same period in 2024, reflecting the company's assessment of the current economic conditions and their potential impact on loan performance.
Geographic Markets and Operations
LCNB operates primarily in Southwest and South-Central Ohio and Northern Kentucky. As a small-cap company, it does not have significant operations outside of this regional footprint. The recent acquisitions of CNNB and EFBI have strengthened LCNB's presence in the Cincinnati and Northern Kentucky markets, expanding its customer base and branch network in these areas.
Conclusion
LCNB Corp has a long history of serving its local communities in Southwest and South-Central Ohio and Northern Kentucky. Despite the challenges faced by the banking industry in recent years, the company has demonstrated resilience and is positioning itself for future growth. Through strategic acquisitions, a focus on wealth management, and initiatives to improve efficiency and digital capabilities, LCNB is working to build on its strong foundation and capitalize on opportunities in its markets.
The company's diversified loan portfolio, with a strong emphasis on commercial real estate lending, provides a solid base for revenue generation. However, LCNB must continue to navigate the challenges posed by the current interest rate environment and economic uncertainties. The integration of recent acquisitions and the ability to leverage these expanded operations will be crucial for LCNB's future success.
As the company continues to navigate the evolving banking landscape, investors will be closely watching LCNB's progress in executing its growth strategies, maintaining its strong financial position, and adapting to changing market conditions. With its established presence in key regional markets and a commitment to community banking principles, LCNB is well-positioned to weather current challenges and pursue growth opportunities in the coming years.