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LCNB Corp. Reports Financial Results for the Three and Nine Months Ended September 30, 2014

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LCNB Corp. (NASDAQ:LCNB) today announced net income of $2,718,000 (total basic and diluted earnings per share of $0.30 and $0.29, respectively) and $6,652,000 (total basic and diluted earnings per common share of $0.72 and $0.71, respectively) for the three and nine months ended September 30, 2014, respectively. This compares to net income of $2,357,000 (total basic and diluted earnings per common share of $0.31 and $0.30, respectively) and $6,433,000 (total basic and diluted earnings per common share of $0.85 and $0.83, respectively) for the same three and nine-month periods in 2013. Results for 2013 and 2014 were significantly affected by the completion of mergers with First Capital Bancshares, Inc. and its subsidiary, Citizens National Bank of Chillicothe, on January 11, 2013 and Eaton National Bank & Trust Co. (“Eaton National”) on January 24, 2014. In addition, 1,642,857 shares of new voting common stock were issued during the fourth quarter 2013.

Commenting on the financial results, LCNB CEO Steve Wilson said, “We are pleased to report solid financial results for the three and nine month periods ended September 30, 2014. Our return on average assets for the nine-month period was 0.79% and our return on average equity was 7.30%, despite incurring $1,366,000 in merger related costs. This success allowed us to continue our dividend rate of $0.16 per quarter, which equates to a 66.7% payout ratio for the nine months in 2014.”

Net interest income for the three and nine months ended September 30, 2014 increased $1,540,000 and $4,571,000, respectively, from the comparative periods in 2013 due primarily to the increased volume of average interest earning assets provided from the merger with Eaton National and by an increase in the net interest margin.

The provision for loan losses for the three and nine months ended September 30, 2014 was $223,000 and $368,000 greater than the comparable periods in 2013. Net loan charge-offs for the first nine months of 2014 and 2013 totaled $1,027,000 and $383,000, respectively. Non-accrual loans and loans past due 90 days or more and still accruing interest totaled $6,375,000 or 0.93% of total loans at September 30, 2014, compared to $3,211,000 or 0.56% of total loans at December 31, 2013. The increase was predominately due to acquired impaired loans that were classified as non-accrual at September 30, 2014. Other real estate owned (which includes property acquired through foreclosure or deed-in-lieu of foreclosure and also includes property deemed to be in-substance foreclosed) and other repossessed assets totaled $1,460,000 and $1,463,000 at September 30, 2014 and December 31, 2013, respectively.

Non-interest income for the three-month period in 2014 was $268,000 greater than the comparable period in 2013 and $39,000 less for the nine-month period. The three-month period was greater primarily due to increases in trust income and service charges and fees on deposit accounts. For the nine-month period, increases in trust income and service charges and fees on deposit accounts were more than offset by decreased gains from sales of investment securities and mortgage loans. The increases in service charges and fees were primarily due to a greater number of deposit accounts resulting from the merger. The increase in trust income was due to growth in the fair value of trust assets serviced and to fee adjustments. The decreases in gains from sales of investment securities and mortgage loans were due to lower sales volumes during the 2014 period.

Non-interest expense for the three and nine months ended September 30, 2014 was $1,075,000 and $3,932,000 greater than the comparable periods in 2013. Salaries and employee benefits, as well as a variety of other expense items, increased significantly due to the increased number of employees and offices resulting from the merger with Eaton National. Also contributing to the increase in non-interest expense were increases in other real estate owned expenses, contracted services, amortization of Eaton National’s core deposit intangible, and marketing costs.

LCNB Corp. is a financial holding company headquartered in Lebanon, Ohio. LCNB Corp.’s only business is ownership of LCNB National Bank, which has 35 offices located in Warren, Butler, Montgomery, Clinton, Clermont, Hamilton, Fayette, Ross, and Preble Counties, Ohio. Additional information about LCNB Corp. and information about products and services offered by LCNB National Bank can be found on the internet at www.lcnb.com.

Certain matters disclosed herein may be deemed to be forward-looking statements that involve risks and uncertainties, including regulatory policy changes, interest rate fluctuations, loan demand, loan delinquencies and losses, and other risks. Actual strategies and results in future time periods may differ materially from those currently expected. Such forward-looking statements represent management’s judgment as of the current date. LCNB disclaims any intent or obligation to update such forward-looking statements. LCNB intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

LCNB Corp. and Subsidiaries

Financial Highlights

(Dollars in thousands, except per share amounts)

Three Months Ended Nine Months Ended
9/30/2014 6/30/2014 3/31/2014 12/31/2013 9/30/2013 9/30/2014 9/30/2013

Condensed Income Statement

Interest income $ 9,906 9,926 9,278 8,566 8,450 29,110 24,931
Interest expense 911 920 915 927 995 2,746 3,138
Net interest income 8,995 9,006 8,363 7,639 7,455 26,364 21,793
Provision for loan losses 401 255 81 219 178 737 369
Net interest income after provision 8,594 8,751 8,282 7,420 7,277 25,627 21,424
Non-interest income 2,315 2,301 2,077 2,358 2,047 6,693 6,732
Non-interest expense 7,238 7,600 8,672 6,634 6,163 23,510 19,578
Income before income taxes 3,671 3,452 1,687 3,144 3,161 8,810 8,578
Provision for income taxes 953 841 364 797 804 2,158 2,145
Net income $ 2,718 2,611 1,323 2,347 2,357 6,652 6,433

Per Share Data

Dividends per share $ 0.16 0.16 0.16 0.16 0.16 0.48 0.48
Basic earnings per share $ 0.30 0.28 0.14 0.27 0.31 0.72 0.85
Diluted earnings per share $ 0.29 0.28 0.14 0.27 0.30 0.71 0.83
Book value per share $ 13.24 13.18 12.89 12.80 12.07 13.24 12.07
Tangible book value per share $ 9.80 9.71 9.44 11.02 9.93 9.80 9.93
Average basic shares outstanding 9,299,691 9,293,382 9,288,400 8,623,134 7,636,098 9,293,866 7,592,818
Average diluted shares outstanding 9,405,013 9,402,343 9,413,049 8,755,416 7,787,098 9,407,110 7,722,686
Shares outstanding at period end 9,305,208 9,298,270 9,292,226 9,287,536 7,640,163 9,305,208 7,640,163

Selected Financial Ratios

Return on average assets 0.95 % 0.91 % 0.50 % 0.98 % 0.99 % 0.79 % 0.91 %
Return on average equity 8.71 % 8.60 % 4.47 % 8.48 % 10.27 % 7.30 % 9.24 %
Dividend payout ratio 53.33 % 57.14 % 114.29 % 59.26 % 51.61 % 66.67 % 56.47 %
Net interest margin (tax equivalent) 3.57 % 3.59 % 3.66 % 3.63 % 3.57 % 3.60 % 3.55 %
Efficiency ratio 64.00 % 67.21 % 83.07 % 66.36 % 64.86 % 71.12 % 68.63 %

Selected Balance Sheet Items

Investment securities and stock $ 322,341 357,567 331,771 279,021 296,819
Loans $ 685,915 691,719 685,196 574,354 566,109
Less allowance for loan losses 3,298 3,394 3,370 3,588 3,423
Net loans $ 682,617 688,325 681,826 570,766 562,686
Total assets $ 1,123,356 1,151,109 1,133,508 932,338 942,349
Total deposits 956,633 986,824 984,514 785,761 808,335
Short-term borrowings 24,954 23,523 11,215 8,655 22,811
Long-term debt 11,432 11,506 11,580 12,102 12,446
Total shareholders’ equity 123,179 122,584 119,761 118,873 92,215
Tangible common equity (TCE) $ 91,203 89,800 87,017 101,893 75,353
Tangible common assets (TCA) 1,091,380 1,118,325 1,100,764 915,358 925,487
TCE/TA 8.36 % 8.03 % 7.91 % 11.13 % 8.14 %
Loans to deposit ratio 71.70 % 70.10 % 69.60 % 73.10 % 70.03 %
Equity to assets ratio 10.97 % 10.65 % 10.57 % 12.75 % 9.79 %
Three Months Ended Nine Months Ended
9/30/2014 6/30/2014 3/31/2014 12/31/2013 9/30/2013 9/30/2014 9/30/2013

Asset Quality

Net charge-offs $ 496 232 299 54 181
Other real estate owned 1,460 1,906 1,799 1,463 1,561
Non-accrual loans 6,264 6,243 5,374 2,961 2,828
Loans past due 90 days or more and still accruing 111 130 825 250 29
Total nonperforming loans $ 6,375 6,373 6,199 3,211 2,857
Net charge-offs to average loans 0.29 % 0.14 % 0.19 % 0.04 % 0.13 %
Allowance for loan losses to total loans 0.48 % 0.49 % 0.49 % 0.62 % 0.60 %
Nonperforming loans to total loans 0.93 % 0.92 % 0.90 % 0.56 % 0.50 %
Nonperforming assets to total assets 0.70 % 0.72 % 0.71 % 0.50 % 0.47 %

Non-GAAP Financial Measures

Net income $ 2,718 2,611 1,323 2,347 2,357 6,652 6,433
Less (add) net gain (loss) on sales of securities, net of tax 64 0 (3 ) 203 38 61 497
Add merger-related expenses, net of tax 3 46 853 101 0 902 913
Core net income $ 2,657 2,657 2,179 2,245 2,319 7,493 6,849
Basic core earnings per share $ 0.29 0.29 0.23 0.26 0.30 0.81 0.90
Diluted core earnings per share $ 0.28 0.28 0.23 0.26 0.30 0.80 0.89
Adjusted return on average assets 0.92 % 0.93 % 0.82 % 0.93 % 0.97 % 0.89 % 0.97 %
Adjusted return on average equity 8.43 % 8.67 % 7.32 % 8.08 % 10.06 % 8.17 % 9.81 %
Core efficiency ratio 64.51 % 66.60 % 70.66 % 67.37 % 65.26 % 67.18 % 65.72 %

LCNB CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

September 30,
2014

December 31,
2013
(Unaudited)
ASSETS:
Cash and due from banks $ 13,388 10,410
Interest-bearing demand deposits 19,665 4,278
Total cash and cash equivalents 33,053 14,688
Investment securities:
Available-for-sale, at fair value 292,853 258,241
Held-to-maturity, at cost 23,504 16,323
Federal Reserve Bank stock, at cost 2,346 1,603
Federal Home Loan Bank stock, at cost 3,638 2,854
Loans, net 682,617 570,766
Premises and equipment, net 20,907 19,897
Goodwill 27,638 14,186
Bank owned life insurance 21,773 21,280
Other assets 15,027 12,500
TOTAL ASSETS $ 1,123,356 932,338
LIABILITIES:
Deposits:
Noninterest-bearing $ 190,875 164,912
Interest-bearing 765,758 620,849
Total deposits 956,633 785,761
Short-term borrowings 24,954 8,655
Long-term debt 11,432 12,102
Accrued interest and other liabilities 7,158 6,947
TOTAL LIABILITIES 1,000,177 813,465
SHAREHOLDERS’ EQUITY:
Preferred shares – no par value, authorized 1,000,000 shares, none outstanding
Common shares – no par value, authorized 12,000,000 shares, issued 10,058,835 and 10,041,163 shares at September 30, 2014 and December 31, 2013, respectively 67,086 66,785
Retained earnings 67,667 65,475
Treasury shares at cost, 753,627 shares at September 30, 2014 and December 31, 2013 (11,665 ) (11,665 )
Accumulated other comprehensive loss, net of taxes 91 (1,722 )
TOTAL SHAREHOLDERS’ EQUITY 123,179 118,873
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 1,123,356 932,338

LCNB CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share data)

(Unaudited)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2014 2013 2014 2013
INTEREST INCOME:
Interest and fees on loans $ 8,168 6,902 24,008 20,298
Interest on investment securities –
Taxable 984 862 2,901 2,556
Non-taxable 716 654 2,019 1,932
Other short-term investments 38 32 182 145
TOTAL INTEREST INCOME 9,906 8,450 29,110 24,931
INTEREST EXPENSE:
Interest on deposits 800 875 2,423 2,789
Interest on short-term borrowings 10 11 18 18
Interest on long-term debt 101 109 305 331
TOTAL INTEREST EXPENSE 911 995 2,746 3,138
NET INTEREST INCOME 8,995 7,455 26,364 21,793
PROVISION FOR LOAN LOSSES 401 178 737 369
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 8,594 7,277 25,627 21,424
NON-INTEREST INCOME:
Trust income 688 626 2,071 1,810
Service charges and fees on deposit accounts 1,245 1,062 3,619 3,114
Net gain (loss) on sales of securities 97 58 93 753
Bank owned life insurance income 165 168 507 512
Gains from sales of mortgage loans 24 57 92 305
Other operating income 96 76 311 238
TOTAL NON-INTEREST INCOME 2,315 2,047 6,693 6,732
NON-INTEREST EXPENSE:
Salaries and employee benefits 4,022 3,247 11,896 9,783
Equipment expenses 337 318 976 908
Occupancy expense, net 541 505 1,706 1,529
State franchise tax 231 208 714 635
Marketing 212 145 541 446
FDIC insurance premiums 183 128 492 375
Merger-related expenses 4 1,366 1,326
Other non-interest expense 1,708 1,612 5,819 4,576
TOTAL NON-INTEREST EXPENSE 7,238 6,163 23,510 19,578
INCOME BEFORE INCOME TAXES 3,671 3,161 8,810 8,578
PROVISION FOR INCOME TAXES 953 804 2,158 2,145
NET INCOME $ 2,718 2,357 6,652 6,433
Dividends declared per common share $ 0.16 0.16 0.48 0.48
Earnings per common share:
Basic $ 0.30 0.31 0.72 0.85
Diluted 0.29 0.30 0.71 0.83
Weighted average common shares outstanding:
Basic 9,299,691 7,636,098 9,293,866 7,592,818
Diluted 9,405,013 7,787,098 9,407,110 7,722,686

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