LCNB Corp. 10-Q Summary
Business context and reporting period
LCNB Corp. is an Ohio bank holding company operating through LCNB National Bank and a captive insurance subsidiary. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2021; balance-sheet comparisons are to December 31, 2020. Dollar amounts below are in millions unless stated otherwise.
Financial performance and position
| Metric | Q3 2021 / Sept. 30 | Comparable period / Dec. 31 |
|---|---|---|
| Net income | $4.817; diluted EPS $0.39 | Q3 2020: $4.250; $0.33 |
| Net interest income | $14.073 | Q3 2020: $13.529 |
| Taxable-equivalent net interest margin | 3.32% | Q3 2020: 3.47% |
| Total assets | $1,884.3 | Dec. 31, 2020: $1,745.9 |
| Net loans | $1,334.3 | Dec. 31, 2020: $1,293.7 |
| Total deposits | $1,603.2 | Dec. 31, 2020: $1,455.4 |
| Long-term debt | $15.0 | Dec. 31, 2020: $22.0 |
| Cash and cash equivalents | $23.9 | Dec. 31, 2020: $31.7 |
For the first nine months, net income rose to $15.347 million from $14.333 million and diluted EPS increased to $1.21 from $1.11. Net interest income was $42.814 million versus $41.705 million; taxable-equivalent net interest margin was 3.49% versus 3.69%. Noninterest income was $11.885 million, up from $11.436 million, while noninterest expense increased to $35.729 million from $33.841 million.
Nine-month operating cash flow was $14.789 million. Investing activities used $148.645 million, principally reflecting $132.428 million of available-for-sale securities purchases and $38.861 million of net loan growth. Financing activities provided $125.978 million, including $147.780 million of deposit growth. Cash declined by $7.878 million to $23.852 million.
At September 30, the Bank reported regulatory capital ratios of 12.29% for common equity Tier 1 and Tier 1, 12.71% for total capital, and 9.48% leverage; it was categorized as well-capitalized. The allowance for loan losses was $5.828 million. Nonaccrual loans were $2.629 million; total nonaccrual and 90-days-past-due accruing loans were $2.642 million. Net charge-offs were $0.139 million for the nine months.
Material changes and management commentary
- Net income improved despite lower loan and investment yields. Management attributed higher net interest income primarily to reduced deposit costs, PPP loan fees, and growth in taxable securities; the lower margin reflects continued asset-yield pressure.
- Provision for loan losses fell to $0.239 million for the nine months from $2.165 million in 2020, when provisions included COVID-related economic adjustments. Management said the allowance was adequate, while noting estimates are judgmental and may change.
- Loan growth was concentrated in commercial real estate and residential real estate and was partly offset by an $8.1 million decrease in PPP loans. PPP balances were $13.0 million at quarter-end; no COVID-related payment deferrals remained.
- Fiduciary income and deposit-account fees increased. Loan-sale gains declined, and 2021 nine-month other income included a one-time $508,000 Ohio financial-institutions tax refund. Higher compensation, equipment, FDIC premiums, contracted services, and other costs increased expenses.
- Deposits grew 10.2% from year-end, which management linked to customer preference for liquidity. Available-for-sale debt securities increased 49.5% from year-end. Long-term debt repayments reduced borrowings by $7 million.
- The Company repurchased 206,768 shares during Q3 at a weighted monthly average price of $16.49 to $17.48; 46,376 shares remained authorized under the program at September 30. Nine-month repurchases totaled 468,072 shares for $7.871 million.
Outlook, risks, and contingencies
The filing provides no specific earnings or financial guidance. Management said COVID-19 effects remained uncertain and continued monitoring the pandemic. Key disclosed risks include borrower repayment and collateral deterioration, loan losses, deposit and loan growth, competition, interest-rate changes, regulatory actions, cybersecurity and technology disruptions, and economic conditions. LCNB expects CECL adoption after December 15, 2022 and anticipates an increase in the allowance, but said the impact could not yet be reasonably estimated.
Management reported adequate liquidity and no liquidity or operational problems. The filing reports approximately $55 million available through correspondent-bank lines. However, FHLB remaining borrowing capacity is stated as approximately $228.6 million in Note 6 and $167.5 million in MD&A; the filing does not reconcile these figures. Off-balance-sheet commitments totaled $268.452 million. Management said routine legal claims were not expected to have a material effect; no material pending legal proceedings were reported.
Most important facts for investors to verify
- Reconcile the differing FHLB borrowing-capacity amounts disclosed in Note 6 and MD&A.
- Track net interest margin and loan yields against deposit-cost trends, including the contribution and runoff of PPP fees.
- Monitor credit quality, allowance adequacy, and the effects of economic conditions and forthcoming CECL adoption.
- Assess whether deposit growth and available liquidity can support lending, commitments, and capital needs.
- Distinguish recurring earnings from the one-time $508,000 state tax refund and consider the effect of ongoing share repurchases.