LCNB Corp. 2020 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2020. LCNB is an Ohio bank holding company operating primarily through LCNB National Bank, serving Southwestern and South Central Ohio and Franklin County. The Bank had 33 offices and 36 ATMs at year-end.
Financial performance and position
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Net income | $20.075 million | $18.912 million | +6.1% |
| Diluted EPS | $1.55 | $1.44 | +$0.11 |
| Net interest income | $56.218 million | $54.406 million | +3.3% |
| Non-interest income | $15.741 million | $12.348 million | +27.5% |
| Non-interest expense | $45.785 million | $43.522 million | +5.2% |
| Provision for loan losses | $2.014 million | $0.207 million | Increased $1.807 million |
| Net interest margin, fully taxable equivalent | 3.70% | 3.71% | -0.01 percentage point |
| Total assets | $1.746 billion | $1.639 billion | +6.5% |
| Loans, net | $1.294 billion | $1.239 billion | +4.4% |
| Total deposits | $1.455 billion | $1.348 billion | +8.0% |
| Long-term debt | $22.0 million | $41.0 million | Down $19.0 million |
Interest income declined to $63.780 million from $65.194 million, but lower interest expense more than offset the decline. Non-interest income growth was led by gains on loan sales, fiduciary income, and bank-owned life insurance income. Non-interest expense growth reflected, among other items, higher salaries and ATM costs.
Quarterly fourth-quarter 2020 net income was $5.742 million, or $0.44 per basic and diluted share, compared with $4.830 million and $0.37 per share in fourth-quarter 2019.
Net cash from operating activities was $13.678 million, compared with $21.968 million in 2019. Investing activities used $80.051 million, principally reflecting securities purchases and loan growth; financing activities provided $77.338 million, largely from $107.143 million of deposit growth. Cash and cash equivalents increased $10.965 million to $31.730 million.
The Bank’s regulatory capital ratios at year-end included a 12.48% CET1 ratio, 12.48% Tier 1 risk-based ratio, 12.91% total risk-based ratio, and 10.06% leverage ratio. Regulators classified the Bank as well capitalized. Year-end borrowing capacity was approximately $178.3 million; separate available correspondent-bank credit lines totaled $55 million. No short-term borrowings were outstanding.
Changes, risks, and outlook
- Loan growth was concentrated in commercial and industrial and commercial real estate lending. Commercial real estate-secured loans were 64.9% of total loans; multifamily loans were 12.0%.
- The allowance for loan losses rose to $5.728 million from $4.045 million, or 0.44% of total loans versus 0.33%. Net charge-offs were $331,000, compared with $208,000. Non-accrual loans were $3.718 million; non-accrual and accruing restructured loans together were 0.68% of loans, down from 0.79%.
- LCNB granted COVID-related payment deferrals on 607 loans with balances of $420.7 million at the time of deferral; $20.6 million remained at December 31, 2020. It originated $45.5 million of PPP loans to 316 businesses; $21.1 million remained outstanding, with $747,000 of unrecognized fees.
- Management provided no quantified earnings or growth guidance. It reported that low rates and the yield curve were expected to put further downward pressure on net interest margin. Interest-rate models estimated a 2.92% decrease in one-year net interest income under a 100-basis-point rate decline, while modeled economic value of equity decreased 15.94% under a 400-basis-point increase. Management cautioned these are model scenarios, not forecasts.
- Management identified the continuing COVID-19 pandemic, local economic and real estate weakness, borrower repayment and collateral risks, commercial loan concentrations, interest-rate changes, competition, cybersecurity, and regulatory requirements as material risks. It stated liquidity was adequate and that no liquidity or operational problems had occurred.
- Goodwill was $59.221 million; impairment testing, including an interim assessment during 2020, resulted in no impairment charge. The auditor issued an unqualified opinion and identified the loan-loss allowance and goodwill impairment assessment as critical audit matters. Management reported effective disclosure controls and internal control over financial reporting.
Key facts for investors to verify
- How COVID-related borrower performance, remaining deferrals, and PPP forgiveness affect subsequent credit quality and provision needs.
- Whether the $5.728 million allowance remains adequate as economic conditions and commercial real estate exposures evolve.
- Whether deposit growth and available borrowing capacity remain sufficient to support liquidity and loan demand.
- How low rates, repricing, deposit costs, and the Bank’s interest-rate sensitivity affect future net interest income and margin.
- The sustainability of non-interest income gains, particularly mortgage-loan sales, securities gains, and fiduciary fees.
- Dividend capacity and capital allocation: the 2020 dividend was $0.73 per share, and a repurchase program authorized up to 645,000 shares; 130,552 shares were repurchased during 2020.