8-K: LCNB Corp. Reports Strong Q3 2024 Results Driven by Acquisitions and Wealth Management Growth

LCNB Corp. announced a 11.4% year-over-year increase in net income for Q3 2024, reaching $4.5 million, driven by strategic acquisitions and growth in wealth management.

Summary

• LCNB Corp. reported a net income of $4.5 million for the third quarter of 2024, an 11.4% increase compared to the same period last year.
• Adjusted net income for Q3 2024 was $4.8 million, a 9.1% increase year-over-year and a 16.8% increase from the previous quarter.
• The company's wealth management assets reached a record $1.37 billion, a 24.4% increase year-over-year and a 3.9% increase from June 30, 2024.
• Tangible book value per share increased from $10.08 at June 30, 2024 to $10.97 at September 30, 2024.
• Net interest income for the quarter was $15.0 million, compared to $13.6 million in the same period of 2023.
• Non-interest income increased to $6.4 million for the quarter, up from $3.6 million in the prior year, primarily due to net gains from loan sales.
• Non-interest expense for the quarter was $15.4 million, compared to $12.2 million in the same period last year, due to higher personnel and operating expenses.
• Total assets increased by 18.4% year-over-year to $2.35 billion, and net loans increased by 17.7% to $1.71 billion.
• Total deposits increased by 18.6% year-over-year to $1.92 billion, with organic deposit growth of 8.5% excluding acquisitions.
• Total assets managed reached a record $4.25 billion, up from $3.23 billion the previous year.
• The company recorded a provision for credit losses of $660,000 for the quarter, compared to a recovery of $114,000 in the same period last year.
• Net charge-offs for the quarter were $84,000, or 0.02% of average loans.
• Nonperforming loans were $3.3 million, or 0.19% of total loans, at September 30, 2024.

Sentiment

Score: 7

Explanation: The sentiment is positive due to the strong growth in net income, wealth management assets, and overall asset base. However, there are some concerns about the increase in non-interest expenses and nonperforming loans, which temper the overall positive outlook.

Positives

• LCNB returned to year-over-year growth in both net income and adjusted net income, one quarter ahead of schedule.
• The acquisitions of Eagle Financial Bancorp and Cincinnati Bancorp are contributing to the company's growth.
• LCNB Wealth Management is experiencing significant growth, with assets reaching a record high.
• The company is focused on integrating acquisitions, improving efficiencies, and pursuing asset sales to enhance the balance sheet.
• LCNB anticipates using proceeds from the sale of acquired loans for general corporate purposes, including supporting loan growth and paying down higher cost funding sources.
• The company has seen organic growth in deposits, excluding the impact of acquisitions.
• LCNB has increased its dividend payout per share by 4.8% compared to the same quarter last year.

Negatives

• Earnings per basic and diluted share for the nine-month period ended September 30, 2024, were $0.53, compared to $1.16 for the same period last year.
• Net interest margin decreased to 2.84% for the third quarter of 2024, compared to 3.04% for the same period last year.
• Non-interest expense increased by $3.1 million for the quarter due to higher personnel and operating expenses.
• The provision for credit losses was $660,000 for the quarter, compared to a recovery of $114,000 in the same period last year.
• Nonperforming loans increased to $3.3 million, or 0.19% of total loans, primarily due to one commercial real estate relationship.

Risks

• The company faces risks related to the successful integration of recent and future acquisitions.
• There is a risk of increased loan charge-offs and the allowance for credit losses may be inadequate.
• LCNB may face competitive loss of customers.
• Changes in the interest rate environment could negatively impact operations.
• General economic conditions and increased competition could adversely affect operating results.
• Changes in regulations and government policies could negatively impact operating results.
• The company may experience difficulties growing loan and deposit balances.
• Global or domestic geopolitical relations and/or conflicts could create financial market uncertainty.
• Difficulties with technology or data security breaches could negatively affect the business.
• Adverse weather events and natural disasters could negatively affect customers.
• Government intervention in the U.S. financial system could impact the company.

Future Outlook

LCNB is focused on integrating recent acquisitions, improving efficiencies, and pursuing asset sales. The company sees significant opportunities to leverage the growth of LCNB Wealth Management and expand its services to more customers. LCNB anticipates the sale of acquired loans in Q4 2024 and will use the proceeds for general corporate purposes.

Management Comments

• Our 2024 third quarter results are encouraging and reflect the growing benefits of the April 2024 Eagle Financial Bancorp, Inc. (EFBI or Eagle) acquisition and the November 2023 Cincinnati Bancorp, Inc. (Cincinnati Federal) acquisition.
• I am pleased to report that LCNB returned to year-over-year growth in both net income and adjusted net income, which was one quarter ahead of our plan.
• Over the near-term, we continue to focus on fully integrating the Eagle and Cincinnati Federal acquisitions, improving efficiencies, and pursuing opportunistic asset sales that we believe will further enhance our balance sheet and earn a quick payback.
• As we look to 2025 and beyond, we believe there are significant opportunities to leverage the continued success and growth of LCNB Wealth Management by offering our wealth management solutions to more customers across our growing footprint, as well as to the Eagle and Cincinnati Federal customers that we believe will benefit from our local, personalized, and proven offerings.
• Despite the complex banking environment, 2024 is proving to be a transformative year for LCNB, marked by the integration of two strategic acquisitions that have increased and strengthened our market position.

Industry Context

The results reflect a trend of consolidation in the regional banking sector, with LCNB leveraging acquisitions to expand its market presence and service offerings. The growth in wealth management assets is also indicative of a broader industry trend towards fee-based income streams.

Comparison to Industry Standards

• LCNB's return on average assets of 0.76% for Q3 2024 is within the range of regional banks, but slightly below some top performers.
• The net interest margin of 2.84% is lower than some peers, indicating potential challenges in managing interest rate risk.
• The growth in wealth management assets at 24.4% year-over-year is a strong performance compared to industry averages.
• The increase in non-interest expense is a concern, as many banks are focused on cost control.
• The increase in nonperforming loans to 0.19% of total loans is a slight concern, but still within acceptable levels for most banks.
• Compared to peers such as First Financial Bancorp (FFBC) and WesBanco (WSBC), LCNB's growth is solid, but its efficiency ratio needs improvement.

Stakeholder Impact

• Shareholders will benefit from the increased net income and dividend payout.
• Employees may see increased opportunities due to the company's growth.
• Customers will have access to a wider range of services and locations due to the acquisitions.
• Suppliers and creditors will benefit from the company's improved financial position.

Next Steps

• LCNB will continue to focus on integrating the Eagle and Cincinnati Federal acquisitions.
• The company will pursue opportunistic asset sales to enhance its balance sheet.
• LCNB plans to leverage the growth of its wealth management division.
• The company expects to sell acquired loans in the fourth quarter of 2024.

Key Dates

Keywords

LCNB Corp, Financial Results, Earnings, Net Income, Wealth Management, Acquisitions, Banking, Loans, Deposits, Asset Management