LCNB Corp. — Q3 2023 Form 10-Q
Business context and reporting period. LCNB Corp. is an Ohio-based bank holding company. This unaudited filing covers the quarter and nine months ended September 30, 2023; balance-sheet comparisons are with December 31, 2022. Unless noted, amounts below are in millions of dollars.
Financial results and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net interest income | $13.57 | $15.44 | $41.69 | $44.83 |
| Net interest margin, taxable-equivalent | 3.04% | 3.54% | 3.20% | 3.48% |
| Net income | $4.07 | $5.58 | $12.92 | $15.72 |
| Diluted earnings per share | $0.37 | $0.49 | $1.16 | $1.36 |
| Non-interest income | $3.58 | $3.58 | $10.81 | $10.66 |
| Non-interest expense | $12.24 | $12.35 | $36.85 | $36.07 |
- Net interest income and earnings: Interest income increased, but was more than offset by higher deposit and borrowing costs. For the first nine months, taxable-equivalent interest income rose $8.24 million while interest expense increased $11.40 million. Management attributed the pressure primarily to higher market rates, deposit repricing, and greater average borrowings.
- Balance sheet at September 30: Total assets were $1,981.7 million, up 3.2% from year-end; net loans were $1,450.5 million, up 3.9%. Deposits totaled $1,616.9 million, up 0.7%, but noninterest-bearing deposits fell $52.7 million as balances shifted toward interest-bearing accounts.
- Credit quality: The allowance for loan losses was $7.93 million, or 0.54% of loans, versus $5.65 million and 0.40% at year-end. Nonaccrual loans were $85,000 (0.01% of loans), compared with $391,000 (0.03%) at year-end. Nine-month net charge-offs were $83,000. The nine-month income statement recorded a $141,000 net recovery of credit losses.
- Cash flow: For the nine months, operating activities provided $12.25 million, investing activities used $45.52 million, and financing activities provided $53.99 million. Cash and cash equivalents increased $20.72 million to $43.42 million.
- Debt and liquidity: Short-term borrowings were $30.0 million and long-term debt was $112.6 million, compared with $71.5 million and $19.1 million, respectively, at year-end. The company reported approximately $61.1 million of remaining FHLB capacity, $80.0 million available through correspondent overnight lines, and a $5.0 million revolving line. Management reported no liquidity or operational problems.
- Capital and securities: The Bank’s total risk-based capital ratio was 12.25% and leverage ratio was 9.32%; it was categorized as well-capitalized. Available-for-sale debt securities had $38.84 million of gross unrealized losses at quarter-end; accumulated other comprehensive loss was $30.71 million, net of tax.
Material changes, outlook and risks
- LCNB adopted CECL on January 1, 2023. Adoption increased the allowance by approximately $2.4 million and reduced retained earnings by $1.9 million after tax; management said the adoption did not materially affect regulatory capital ratios.
- LCNB’s merger with Cincinnati Bancorp, Inc. closed on November 1, 2023, after the reporting date. CNNB reported $310.8 million in assets, $265.6 million in net loans and $211.4 million in deposits at September 30. The merger expands LCNB’s Cincinnati-area presence and adds a Northern Kentucky branch. LCNB recorded $742,000 of merger-related expenses in the first nine months, including $302,000 in Q3.
- Other notable items included a $425,000 gain on sale of a decommissioned office building in 2023; the comparable 2022 nine-month period included an $889,000 gain on sale of other real estate owned. FDIC insurance premiums increased, while lower other expenses partly offset these costs.
- No specific earnings or financial guidance was provided. Management described interest rates as a key risk: its sensitivity analysis estimated that a 300-basis-point rate increase would reduce one-year net interest income by 5.06%. The filing also highlights deposit competition, unrealized losses on longer-duration assets, economic and credit risk, acquisition integration, cybersecurity, and regulatory uncertainty. Management cautions that rate-sensitivity models depend on uncertain assumptions.
- LCNB reported effective disclosure controls and no material changes in internal control over financial reporting. It said routine legal claims were not expected to have a material effect.
Important facts for investors to verify
- Whether post-merger integration, costs, and acquired balances develop as expected.
- Whether deposit mix and pricing, borrowing needs, and net interest margin stabilize or continue to pressure earnings.
- Whether loan growth and the CECL allowance remain appropriate as economic forecasts and credit conditions change.
- How unrealized securities losses, liquidity sources, and capital ratios evolve; confirm available borrowing capacity and funding terms.
- Whether the reported Q3 building-sale gain and merger expenses affect comparisons with future operating results.