Business Overview and History
LCNB Corp. (NASDAQ:LCNB) is a financial holding company headquartered in Lebanon, Ohio, with a proud history of serving customers and communities in Southwest and South-Central Ohio, as well as Northern Kentucky. Through its subsidiary, LCNB National Bank, the company has established itself as a reliable and community-focused financial institution, successfully navigating industry changes and capitalizing on strategic opportunities.
LCNB Corp. was founded in 1982 as Lebanon Citizens National Bank, with a mission to provide exceptional banking services to its local community. Over the decades, the company has undergone a remarkable transformation, both organically and through strategic acquisitions, solidifying its position as a prominent regional player.
In 2005, the company expanded its presence in the Cincinnati market through the acquisition of Cincinnati Bancorp, Inc. This strategic move also allowed LCNB to grow its community banking franchise across the Ohio River into the Northern Kentucky market, significantly broadening its geographical footprint.
A significant milestone in LCNB's history came in 2015 when the company adopted the LCNB Corp. 2015 Ownership Incentive Plan. This initiative allows for stock-based awards to eligible employees as determined by the Compensation Committee of the Board of Directors, providing for the issuance of up to 450,000 shares of common stock. This plan has played a crucial role in aligning employee interests with those of the company and its shareholders.
In recent years, LCNB has continued its growth trajectory through strategic acquisitions. In 2023, the company acquired both Cincinnati Bancorp, Inc. and Eagle Financial Bancorp, Inc. While these mergers and acquisitions resulted in one-time expenses associated with the transactions, they have allowed LCNB to significantly increase its presence in the Cincinnati market and expand into attractive Southwestern Ohio and Northern Kentucky markets.
As part of its ongoing optimization efforts, LCNB consolidated one of the full-service branches acquired from Cincinnati Bancorp during the third quarter of 2024. This move demonstrates the company's commitment to operational efficiency while maintaining its strong market presence.
LCNB's growth has not come at the expense of its financial stability or asset quality. As of March 31, 2024, the company reported total nonperforming loans to total loans of only 0.20%, reflecting its prudent risk management practices. Additionally, LCNB has successfully grown its wealth management business, with total assets under management reaching a record $3.98 billion as of the first quarter of 2024.
Today, LCNB operates a diversified business model, providing a comprehensive range of banking, wealth management, and insurance services to its customers. The company's strong presence in its core markets, coupled with its prudent risk management and commitment to community engagement, have been the cornerstones of its success.
Financial Performance and Ratios
LCNB's financial performance has been consistently solid, with the company reporting strong profitability and maintaining a healthy balance sheet. As of the latest quarterly report (Q3 2024), the company reported net income of $4.5 million and total assets of $2.35 billion.
The company's key financial ratios indicate a stable and well-capitalized institution. As of September 30, 2024, LCNB's Tier 1 capital ratio stood at 9.81%, well above the regulatory minimum of 6.00%, while its total risk-based capital ratio was 10.46%, comfortably meeting the 8.00% requirement. The bank's leverage ratio of 7.74% also exceeded the 4.00% threshold for well-capitalized institutions.
LCNB's asset quality metrics remain strong, with a non-performing loans to total loans ratio of just 0.17% as of September 30, 2024. The company's allowance for credit losses, which stood at $11.87 million at the end of the third quarter, reflects its prudent approach to risk management and its commitment to maintaining a robust credit profile.
Financials
LCNB's financial statements demonstrate a consistent track record of growth and stability. The company's net interest income has shown steady improvement, reflecting its ability to manage interest rate fluctuations effectively. Non-interest income, particularly from wealth management and insurance services, has been a significant contributor to the company's overall revenue growth.
The efficiency ratio, a key metric in the banking industry, has remained competitive, indicating LCNB's ability to control costs while growing its revenue base. This operational efficiency has translated into solid returns on assets (ROA) and returns on equity (ROE), positioning LCNB favorably among its peer group.
For the most recent fiscal year (2023), LCNB reported revenue of $70.65 million, net income of $12.63 million, operating cash flow of $20.70 million, and free cash flow of $18.10 million. In the most recent quarter (Q3 2024), the company's performance continued to be strong, with revenue of $26.40 million, net income of $4.53 million, operating cash flow of $8.73 million, and free cash flow of $10.73 million.
Year-over-year revenue growth for Q3 2024 was impressive at 34.3%. This increase was primarily driven by higher loan interest income due to increased loan balances and higher yields, as well as increased non-interest income from higher fiduciary income, service charges, and gains on loan sales.
Liquidity
LCNB maintains a strong liquidity position, ensuring its ability to meet customer needs and regulatory requirements. The company's loan-to-deposit ratio is well-managed, providing a stable funding base for its lending activities. Additionally, LCNB has access to various liquidity sources, including Federal Home Loan Bank borrowings and the Federal Reserve discount window, further enhancing its financial flexibility.
The company's investment portfolio, primarily consisting of high-quality, liquid securities, serves as an additional source of liquidity. This diversified approach to liquidity management allows LCNB to navigate varying market conditions effectively while supporting its growth initiatives.
As of September 30, 2024, LCNB's debt-to-equity ratio stood at 0.66, indicating a conservative capital structure. The company held $39.37 million in cash and had access to a short-term revolving line of credit arrangement for up to $10 million, as well as overnight line of credit borrowing arrangements with three correspondent financial institutions totaling $105 million. These credit facilities provide LCNB with additional financial flexibility to support its operations and growth initiatives.
The company's current ratio of 1.14 and quick ratio of 1.08 as of September 30, 2024, further underscore its strong liquidity position and ability to meet short-term obligations.
Product Segments
LCNB's largest asset category is its loan portfolio, which represents its most significant source of interest income. The loan portfolio is divided into several classifications: Commercial Industrial, Commercial Real Estate, Residential Real Estate, Consumer, Agricultural, and Other.
The Commercial Real Estate segment is the largest, comprising about 64% of total loans as of September 30, 2024. This segment includes loans secured by owner-occupied commercial properties, non-owner occupied commercial properties, farmland, multi-family dwellings, and construction loans. These loans are primarily impacted by interest rates and local economic conditions that affect occupancy rates and rental income. LCNB monitors concentration limits by industry and reviews credit quality trends to determine if changes in underwriting standards are warranted.
The Residential Real Estate segment includes loans secured by first or second mortgages on 1-4 family residential properties as well as home equity lines of credit. These loans are generally underwritten based on the borrower's ability to repay and the value of the collateral, with a focus on credit history and loan-to-value ratios.
The Consumer loan segment includes secured and unsecured loans to individuals for household, family, and personal expenditures. These loans generally have higher interest rates but also pose additional risks of collectability compared to other loan types.
The Agricultural loan segment provides financing for agricultural production as well as the purchase of equipment used in agricultural production. These loans are typically secured by farm machinery, livestock, crops, vehicles, or other agricultural-related collateral.
As of September 30, 2024, LCNB's total loan portfolio was $1.72 billion, relatively flat compared to the prior year-end. The allowance for credit losses was $11.87 million, or 0.69% of total loans, up from 0.61% at the end of 2023. Net charge-offs for the first nine months of 2024 were $147,000 compared to $83,000 in the prior year period. The provision for credit losses was $1.31 million for the first nine months of 2024 compared to a recovery of $141,000 in the prior year period, reflecting the addition of reserves related to the EFBI acquisition.
Weathering Challenges and Seizing Opportunities
LCNB's success is not without its challenges, however. The company, like many of its peers, has had to navigate the complex and ever-evolving regulatory landscape, as well as the headwinds posed by the COVID-19 pandemic and the ongoing macroeconomic uncertainties.
During the pandemic, LCNB demonstrated its resilience, quickly adapting its operations to ensure the safety of its employees and customers while continuing to provide essential banking services. The company's participation in the Paycheck Protection Program (PPP) also helped support its local business communities during a period of unprecedented disruption.
More recently, LCNB has faced the challenge of integrating the operations of Cincinnati Bancorp and Eagle Financial Bancorp, both of which were acquired within the past 18 months. However, the company's experienced management team and well-established integration processes have allowed it to seamlessly combine these new operations, unlocking valuable synergies and expanding its customer reach.
Looking ahead, LCNB remains focused on organic growth, diversifying its revenue streams, and pursuing strategic acquisitions that align with its community banking model. The company's investments in technology and digital capabilities have also positioned it to better serve its customers, who increasingly demand convenient and innovative financial solutions.
Conclusion
LCNB Corp. is a prime example of a resilient community bank that has successfully navigated industry challenges while capitalizing on strategic opportunities. The company's rich history, prudent risk management, and commitment to its local communities have been the driving forces behind its growth and success.
As LCNB continues to expand its footprint and enhance its service offerings, it remains well-positioned to deliver long-term value for its shareholders, customers, and the communities it serves. With a strong balance sheet, ample liquidity, and a seasoned management team, LCNB is poised to continue its trajectory as a leading regional banking institution in Southwest and South-Central Ohio and Northern Kentucky.