LCNB Corp. 2021 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing; the supplied filing text does not provide distinct fourth-quarter results. LCNB is an Ohio-based financial holding company whose principal subsidiary, LCNB National Bank, provides banking, wealth management, and investment services, primarily in Southwestern and South Central Ohio.
Financial performance and condition
| Metric | 2021 | 2020 | Change or context |
|---|---|---|---|
| Net income | $21.0 million | $20.1 million | Up 4.5% |
| Diluted earnings per share | $1.66 | $1.55 | Up 7.1% |
| Net interest income (GAAP) | $57.1 million | $56.2 million | Up $0.9 million |
| Net interest margin (tax-equivalent) | 3.45% | 3.70% | Down 0.25 percentage points |
| Total assets | $1.90 billion | $1.75 billion | Up 9.0% |
| Net loans | $1.36 billion | $1.29 billion | Up 5.4% |
| Total deposits | $1.63 billion | $1.46 billion | Up 11.9% |
| Long-term debt | $10.0 million | $22.0 million | Down $12.0 million; no new debt obtained in 2021 |
Interest income declined to $61.2 million from $63.8 million, but interest expense fell more sharply to $4.1 million from $7.6 million. Non-interest income rose to $16.2 million from $15.7 million, including fiduciary income growth; non-interest expense increased to $48.0 million from $45.8 million. The 2021 effective tax rate was 18.0%, compared with 16.9% in 2020.
Net cash provided by operating activities was $17.8 million, compared with $13.7 million in 2020. Investing activities used $175.2 million, primarily reflecting securities purchases and loan growth; financing activities provided $143.8 million, principally from deposit growth. Cash and cash equivalents ended the year at $18.1 million, down from $31.7 million.
At year-end, the Bank had $186.6 million of remaining FHLB borrowing capacity and approximately $55 million available on correspondent-bank credit lines. The Bank was classified as well-capitalized; its total risk-based capital ratio was 12.64% and leverage ratio was 9.58%. The allowance for loan losses was $5.5 million, or 0.40% of loans; non-accrual loans were $1.5 million, or 0.11% of loans. Uninsured deposits were estimated at $222.2 million.
Material changes versus the prior comparable period
- Loan growth was concentrated in commercial real estate and residential real estate. Gross loans increased to $1.37 billion from $1.30 billion.
- Credit-loss expense shifted to a $269,000 credit in 2021, versus a $2.0 million provision in 2020. Management attributed much of the prior-year provision to qualitative adjustments for pandemic-related economic risk. COVID-related payment deferrals had ended by year-end 2021.
- Loan-sale gains fell to $852,000 from $2.3 million in 2020, when higher loan-sale volume contributed to gains. PPP loans outstanding declined to $6.9 million from $21.1 million.
- Available-for-sale debt securities rose to $308.2 million from $209.5 million. Market-driven fair-value declines reduced accumulated other comprehensive income by $5.9 million after tax; shareholders’ equity declined 0.9% to $238.6 million.
- LCNB repurchased 493,257 shares for $8.3 million during 2021, compared with 130,552 shares for $1.9 million in 2020. It paid $0.77 per share in dividends during 2021, versus $0.73 in 2020.
Outlook, risks, contingencies, and unusual items
- The filing gives no specific earnings or growth guidance. Management stated that it believed liquidity was adequate for short- and long-term needs and expected the Bank to be able to pay anticipated ordinary dividends to the parent without seeking regulatory approval.
- Management expected adoption of CECL, planned for fiscal 2023, to increase the allowance for credit losses; the amount of the impact was not reasonably estimable in the filing. The allowance estimate was identified as the auditor’s critical audit matter because it requires significant judgment, including assessment of economic conditions and pandemic effects.
- Interest-rate risk is a key exposure. The Bank’s one-year simulation indicated a 1.68% increase in net interest income under a 200-basis-point rate increase, but a 3.40% decline under a 100-basis-point decrease. Economic value of equity declined under modeled rate increases. These model results depend on uncertain assumptions and are not earnings forecasts.
- Key risks include the concentration of commercial real estate and other property-secured lending, local economic and real-estate conditions, interest-rate and deposit competition, cyber and technology disruption, regulatory requirements, and continuing pandemic uncertainty. Management noted that unrealized securities losses were primarily attributable to interest-rate movements and recorded no other-than-temporary impairment.
- Off-balance-sheet commitments to extend credit, unused lines, and standby letters of credit totaled $290.7 million. Management said routine legal claims were not expected to be material; no material pending legal proceedings were reported.
- Subsequent to year-end, LCNB entered into an unsecured $20 million revolving line of credit, with a 12-month term beginning February 8, 2022. The Colerain office closed on February 18, 2022.
- The independent auditor issued an unqualified opinion on the financial statements. The auditor was not engaged to express an opinion on internal control effectiveness; management reported its controls assessment as effective.
Important facts for investors to verify
- Whether loan growth—especially commercial real estate growth—remains sound, and how non-accruals, criticized loans, charge-offs, and the allowance develop.
- The eventual CECL transition effect on reserves, earnings, and capital.
- How interest-rate changes affect net interest margin, deposit costs, securities values, and economic value of equity.
- The stability and cost of deposit funding, including uninsured deposits, and the availability of stated borrowing capacity.
- Whether securities valuation changes or share repurchases affect capital and shareholder returns; also confirm regulatory capacity for future dividends.
- How the $290.7 million of commitments may translate into funded loans and liquidity needs.