LCNB Corp. Reports Financial Results for the Three and Six Months Ended June 30, 2019

LEBANON, Ohio--(BUSINESS WIRE)--LCNB Corp. ("LCNB") (NASDAQ: LCNB) today announced net income of $4,728,000 (total basic and diluted earnings per share of $0.36) and $9,355,000 (total basic and diluted earnings per share of $0.71) for the three and six months ended June 30, 2019, respectively. This compares to net income of $2,738,000 (total basic and diluted earnings per share of $0.25) and $5,451,000 (total basic and diluted earnings per share of $0.52) for the same three and six month periods in 2018.

Commenting on the financial results, LCNB Chief Executive Officer Eric Meilstrup said, "We are pleased to report strong earnings for the three and six months ended June 30, 2019. Net income for the first half of 2019 was $3,904,000 greater than the first half of 2018, fueled by a $5,425,000 increase in net interest income that resulted primarily from a $70.7 million increase in our net loan portfolio, from $1.155 billion at June 30, 2018 to $1.226 billion at June 30, 2019. Our return on average assets for the first half of 2019 was 1.15% and our return on average equity was 8.47%. Additionally, positive earnings growth allowed for increased shareholder dividends, from $0.32 per share for the first half of 2018 to $0.34 per share for the same period in 2019. LCNB remains committed to enhancing shareholder value. In addition to increased earnings and dividends, LCNB commenced a new share repurchase program during the second quarter 2019 that authorizes the repurchase of up to 500,000 shares of our outstanding common stock. Under this new program, we repurchased 342,085 shares during the second quarter."

Net interest income for the three and six months ended June 30, 2019 was, respectively, $2,222,000 and $5,425,000 greater than the comparable periods in 2018, primarily due to growth in the average balance of LCNB's loan portfolio, partially offset by a decrease in average investment securities and increases in average deposits and long-term borrowings. Also offsetting the positive effect on net interest income from growth in the loan portfolio was a market-driven increase in average rates paid on deposits. Loans, deposits, and long-term borrowings obtained through the merger with Columbus First Bancorp ("CFB") on May 31, 2018 were a considerable component of the growth in the average balance of LCNB's loan portfolio and the increases in the average balances of deposits and long-term borrowings.

The provision for loan losses for the three and six months ended June 30, 2019 was, respectively, $170,000 and $354,000 less than the comparable periods in 2018. Non-accrual loans and loans past due 90 days or more and still accruing interest decreased $114,000, from $3,100,000 or 0.26% of total loans at December 31, 2018 to $2,986,000 or 0.24% of total loans at June 30, 2019.

Non-interest income for the three and six months ended June 30, 2019 was, respectively, $207,000 and $343,000 greater than the comparable periods in 2018, primarily due to increases in fiduciary income and service charges and fees on deposit accounts. Market-driven increases in the fair value of equity security investments contributed to the increase in other operating income for the six-month period, but the effect on the three-month period was negligible.

Non-interest expense for the three and six months ended June 30, 2019 was, respectively, $122,000 and $1,273,000 greater than the comparable periods in 2018, primarily due to increases in salaries and employee benefits, state financial institutions tax, marketing, amortization of intangibles, contracted services expenses and other real estate owned expenses. Salaries and employee benefits increased primarily due to salary and wage increases and newly hired employees, including CFB employees retained. State financial institutions tax expense increased due to a larger capital base (Ohio financial institutions tax is based on capital, not income), largely caused by stock issued to CFB stockholders as merger consideration. Marketing expense increased primarily due to promotion costs for new checking products introduced in 2018, increased marketing activities in the Columbus area, and expanded use of broadcast and digital media. Amortization of intangibles increased due to amortization of the core deposit intangible recorded as part of the acquisition of CFB. Other real estate owned expense increased due to an impairment charge recognized during the second quarter 2019. A decrease in merger related expenses and the absence of an impairment charge recognized on one of LCNB's office buildings during the second quarter 2018 partially offset these increases.

LCNB Corp. is a financial holding company headquartered in Lebanon, Ohio. Through its subsidiary, LCNB National Bank (the “Bank”), it serves customers and communities in Southwest and South Central Ohio. A financial institution with a long tradition for building strong relationships with customers and communities, the Bank offers convenient banking locations in Butler, Clermont, Clinton, Fayette, Franklin, Hamilton, Montgomery, Preble, Ross, and Warren Counties, Ohio. The Bank continually strives to exceed customer expectations and provides an array of services for all personal and business banking needs including checking, savings, online banking, personal lending, business lending, agricultural lending, business support, deposit and treasury, investment services, trust and IRAs and stock purchases. LCNB Corp. common shares are traded on the NASDAQ Capital Market Exchange® under the symbol “LCNB.” Learn more about LCNB Corp. at www.lcnb.com.

Certain statements made in this news release regarding LCNB’s financial condition, results of operations, plans, objectives, future performance and business, are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These forward-looking statements are identified by the fact they are not historical facts and include words such as “anticipate”, “could”, “may”, “feel”, “expect”, “believe”, “plan”, and similar expressions. Please refer to LCNB’s Annual Report on Form 10-K for the year ended December 31, 2018, as well as its other filings with the SEC, for a more detailed discussion of risks, uncertainties and factors that could cause actual results to differ from those discussed in the forward-looking statements.

These forward-looking statements reflect management's current expectations based on all information available to management and its knowledge of LCNB’s business and operations. Additionally, LCNB’s financial condition, results of operations, plans, objectives, future performance and business are subject to risks and uncertainties that may cause actual results to differ materially. These factors include, but are not limited to:

1. the success, impact, and timing of the implementation of LCNB’s business strategies;
2. LCNB’s ability to integrate recent and future acquisitions may be unsuccessful, or may be more difficult, time-consuming or costly than expected;
3. LCNB may incur increased charge-offs in the future;
4. LCNB may face competitive loss of customers;
5. changes in the interest rate environment may have results on LCNB’s operations materially different from those anticipated by LCNB’s market risk management functions;
6. changes in general economic conditions and increased competition could adversely affect LCNB’s operating results;
7. changes in other regulations and government policies affecting bank holding companies and their subsidiaries, including changes in monetary policies, could negatively impact LCNB’s operating results;
8. LCNB may experience difficulties growing loan and deposit balances;
9. the current economic environment poses significant challenges for us and could adversely affect LCNB's financial condition and results of operations;
10. deterioration in the financial condition of the U.S. banking system may impact the valuations of investments LCNB has made in the securities of other financial institutions resulting in either actual losses or other than temporary impairments on such investments;
11. difficulties with technology or data security breaches, including cyberattacks, that could negatively affect LCNB's ability to conduct business and its relationships with customers, vendors, and others; and
12. government intervention in the U.S. financial system, including the effects of recent legislative, tax, accounting and regulatory actions and reforms, including the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Jumpstart Our Business Startups Act, the Consumer Financial Protection Bureau, the capital ratios of Basel III as adopted by the federal banking authorities, and the Tax Cuts and Jobs Act.

Forward-looking statements made herein reflect management's expectations as of the date such statements are made. Such information is provided to assist shareholders and potential investors in understanding current and anticipated financial operations of LCNB and is included pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. LCNB undertakes no obligation to update any forward-looking statement to reflect events or circumstances that arise after the date such statements are made.

LCNB Corp. and Subsidiaries
Financial Highlights
(Dollars in thousands, except per share amounts)
(Unaudited)
	Three Months Ended											Six Months Ended
	6/30/2019			3/31/2019		12/31/2018		9/30/2018		6/30/2018		6/30/2019		6/30/2018
Condensed Income Statement
Interest income	$	16,328		16,113		15,844		15,070		12,538		32,441		23,680
Interest expense		2,738		2,722		2,334		1,967		1,170		5,460		2,124
Net interest income		13,590		13,391		13,510		13,103		11,368		26,981		21,556
Provision (credit) for loan losses		54		(105	)	(39	)	659		224		(51	)	303
Net interest income after provision		13,536		13,496		13,549		12,444		11,144		27,032		21,253
Non-interest income		2,998		2,772		2,702		2,921		2,791		5,770		5,427
Non-interest expense		10,833		10,700		9,925		10,317		10,711		21,533		20,260
Income before income taxes		5,701		5,568		6,326		5,048		3,224		11,269		6,420
Provision for income taxes		973		941		1,133		847		486		1,914		969
Net income	$	4,728		4,627		5,193		4,201		2,738		9,355		5,451
Amort/Accret income on acquired loans	$	355		224		229		198		44		579		140
Amort/Accret expenses on acquired interest-bearing liabilities	$	142		144		149		214		—		286		—
Tax-equivalent net interest income	$	13,700		13,536		13,680		13,279		11,549		27,236		21,924
Per Share Data
Dividends per share	$	0.17		0.17		0.17		0.16		0.16		0.34		0.32
Basic earnings per common share	$	0.36		0.35		0.40		0.32		0.25		0.71		0.52
Diluted earnings per common share	$	0.36		0.35		0.40		0.32		0.25		0.71		0.52
Book value per share	$	17.18		16.83		16.47		16.05		15.97		17.18		15.97
Tangible book value per share	$	12.31		12.05		11.67		11.23		11.14		12.31		11.14
Weighted average common shares outstanding:
Basic		13,192,691		13,283,634		13,285,386		13,285,203		11,099,485		13,237,909		10,563,030
Diluted		13,196,665		13,287,338		13,290,499		13,290,665		11,105,014		13,241,752		10,568,792
Shares outstanding at period end		12,978,554		13,314,148		13,295,276		13,304,976		13,299,235		12,978,554		13,299,235
Selected Financial Ratios
Return on average assets		1.16	%	1.15	%	1.27	%	1.03	%	0.78	%	1.15	%	0.81	%
Return on average equity		8.46	%	8.47	%	9.55	%	7.76	%	6.46	%	8.47	%	6.87	%
Dividend payout ratio		47.22	%	48.57	%	42.50	%	50.00	%	64.00	%	47.89	%	61.54	%
Net interest margin (tax equivalent)		3.72	%	3.71	%	3.69	%	3.59	%	3.63	%	3.71	%	3.61	%
Efficiency ratio (tax equivalent)		64.87	%	65.61	%	60.58	%	63.69	%	74.69	%	65.24	%	74.07	%
Selected Balance Sheet Items
Cash and cash equivalents	$	23,185		19,527		20,040		19,812		24,901
Debt and equity securities		246,701		264,559		282,813		299,786		311,047
Loans:
Commercial and industrial	$	79,513		79,725		77,740		78,002		81,778
Commercial, secured by real estate		793,863		764,424		740,647		704,987		705,978
Residential real estate		326,029		334,227		349,127		347,920		339,435
Consumer		19,649		17,409		17,283		17,505		17,705
Agricultural		10,843		10,900		13,297		13,280		13,390
Other, including deposit overdrafts		373		409		450		498		583
Deferred net origination costs (fees)		(9	)	40		79		133		229
Loans, gross		1,230,261		1,207,134		1,198,623		1,162,325		1,159,098
Less allowance for loan losses		4,112		4,126		4,046		4,016		3,603
Loans, net	$	1,226,149		1,203,008		1,194,577		1,158,309		1,155,495
Total earning assets	$	1,482,913		1,476,862		1,483,166		1,465,787		1,471,923
Total assets		1,642,012		1,632,387		1,636,927		1,620,299		1,631,442
Total deposits		1,357,959		1,347,857		1,300,919		1,371,023		1,380,884
	Three Months Ended											Six Months Ended
	6/30/2019			3/31/2019		12/31/2018		9/30/2018		6/30/2018		6/30/2019		6/30/2018
Selected Balance Sheet Items, continued
Short-term borrowings		0		0		56,230		0		0
Long-term debt		41,986		42,982		47,032		23,079		27,085
Total shareholders’ equity		222,972		224,018		218,985		213,515		212,366
Equity to assets ratio		13.58	%	13.72	%	13.38	%	13.18	%	13.02	%
Loans to deposits ratio		90.60	%	89.56	%	92.14	%	84.78	%	83.94	%
Tangible common equity (TCE)	$	159,702		160,488		155,197		149,398		147,705
Tangible common assets (TCA)		1,578,742		1,568,857		1,573,139		1,556,182		1,566,781
TCE/TCA		10.12	%	10.23	%	9.87	%	9.60	%	9.43	%
Selected Average Balance Sheet Items
Cash and cash equivalents	$	29,523		25,080		20,685		25,920		27,319		27,332		24,601
Debt and equity securities		249,954		266,081		291,433		304,112		306,366		257,972		310,007
Loans	$	1,217,726		1,208,809		1,177,061		1,155,846		961,726		1,213,292		907,739
Less allowance for loan losses		4,088		4,074		4,016		3,622		4,245		4,081		3,825
Net loans	$	1,213,638		1,204,735		1,173,045		1,152,224		957,481		1,209,211		903,914
Total earning assets	$	1,479,225		1,480,634		1,471,650		1,465,510		1,276,176		1,479,924		1,223,733
Total assets		1,637,645		1,635,416		1,626,029		1,623,016		1,409,698		1,636,370		1,351,355
Total deposits		1,352,449		1,333,529		1,333,673		1,367,950		1,212,104		1,343,042		1,163,810
Short-term borrowings		243		23,235		36,348		1,833		3,491		11,675		8,759
Long-term debt		42,567		44,676		25,536		25,757		13,252		43,616		7,784
Total shareholders’ equity		224,203		221,470		215,739		214,769		170,077		222,844		160,123
Equity to assets ratio		13.69	%	13.54	%	13.27	%	13.23	%	12.06	%	13.62	%	11.85	%
Loans to deposits ratio		90.04	%	90.65	%	88.26	%	84.49	%	79.34	%	90.34	%	78.00	%
Asset Quality
Net charge-offs (recoveries)	$	68		(185	)	(68	)	245		150		(117	)	103
Other real estate owned		197		244		244		35		35		197		35
Non-accrual loans		2,962		2,845		2,951		2,603		4,065		2,962		4,065
Loans past due 90 days or more and still accruing		24		177		149		1		5		24		5
Total nonperforming loans	$	2,986		3,022		3,100		2,604		4,070		2,986		4,070
Net charge-offs (recoveries) to average loans		0.02	%	(0.06	)%	(0.02	)%	0.08	%	0.06	%	(0.02	)%	0.02	%
Allowance for loan losses to total loans		0.33	%	0.34	%	0.34	%	0.35	%	0.31	%	0.33	%	0.31	%
Nonperforming loans to total loans		0.24	%	0.25	%	0.26	%	0.22	%	0.35	%	0.24	%	0.35	%
Nonperforming assets to total assets		0.19	%	0.20	%	0.20	%	0.16	%	0.25	%	0.19	%	0.25	%
Assets Under Management
LCNB Corp. total assets	$	1,642,012		1,632,387		1,636,927		1,620,299		1,631,442
Trust and investments (fair value)		382,462		367,649		337,549		386,582		370,587
Mortgage loans serviced		88,444		89,049		97,685		115,647		114,536
Cash management		71,973		55,981		48,906		36,502		48,369
Brokerage accounts (fair value)		260,202		245,758		233,751		247,175		238,651
Total assets managed	$	2,445,093		2,390,824		2,354,818		2,406,205		2,403,585
Non-GAAP Financial Measures
Net income	$	4,728		4,627		5,193		4,201		2,738		9,355		5,451
Add: merger-related expenses, net of tax		16		53		148		274		710		69		1,331
Adjusted net income	$	4,744		4,680		5,341		4,475		3,448		9,424		6,782
Basic adjusted earnings per share		0.36		0.36		0.41		0.34		0.31		0.71		0.64
Diluted adjusted earnings per share		0.36		0.36		0.41		0.34		0.31		0.71		0.64
Adjusted return on average assets		1.16	%	1.16	%	1.30	%	1.09	%	0.98	%	1.16	%	1.01	%
Adjusted return on average equity		8.49	%	8.57	%	9.82	%	8.27	%	8.13	%	8.53	%	8.54	%

LCNB CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)
	June 30, 2019 (Unaudited)			December 31, 2018
ASSETS:
Cash and due from banks	$	17,234		18,310
Interest-bearing demand deposits		5,951		1,730
Total cash and cash equivalents		23,185		20,040
Interest-bearing time deposits		498		996
Investment securities:
Equity securities with a readily determinable fair value, at fair value		2,246		2,078
Equity securities without a readily determinable fair value, at cost		2,099		2,099
Debt securities, available-for-sale, at fair value		198,660		238,421
Debt securities, held-to-maturity, at cost		33,343		29,721
Federal Reserve Bank stock, at cost		4,652		4,653
Federal Home Loan Bank stock, at cost		5,203		4,845
Loans, net		1,226,149		1,194,577
Premises and equipment, net		33,013		32,627
Operating leases right of use asset		5,686		—
Goodwill		59,221		59,221
Core deposit and other intangibles		4,494		5,042
Bank owned life insurance		29,088		28,723
Other assets		14,475		13,884
TOTAL ASSETS	$	1,642,012		1,636,927
LIABILITIES:
Deposits:
Noninterest-bearing	$	335,474		322,571
Interest-bearing		1,022,485		978,348
Total deposits		1,357,959		1,300,919
Short-term borrowings	—			56,230
Long-term debt		41,986		47,032
Operating leases liability		5,615		—
Accrued interest and other liabilities		13,480		13,761
TOTAL LIABILITIES		1,419,040		1,417,942
COMMITMENTS AND CONTINGENT LIABILITIES	—			—
SHAREHOLDERS' EQUITY:
Preferred shares – no par value, authorized 1,000,000 shares, none outstanding	—			—
Common shares – no par value, authorized 19,000,000 shares at June 30, 2019 and December 31, 2018; issued 14,095,666 and 14,070,303 shares at June 30, 2019 and December 31, 2018, respectively		141,479		141,170
Retained earnings		99,400		94,547
Treasury shares at cost, 1,117,112 and 775,027 shares at June 30, 2019 and December 31, 2018		(17,854	)	(12,013	)
Accumulated other comprehensive loss, net of taxes		(53	)	(4,719	)
TOTAL SHAREHOLDERS' EQUITY		222,972		218,985
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	1,642,012		1,636,927

LCNB CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)
	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
INTEREST INCOME:
Interest and fees on loans	$	14,662	10,703		29,200		20,116
Dividends on equity securities with a readily determinable fair value		15	16		32		31
Dividends on equity securities without a readily determinable fair value		16	8		32		15
Interest on debt securities, taxable		933	934		1,802		1,865
Interest on debt securities, non-taxable		417	680		961		1,384
Other short-term investments		285	197		414		269
TOTAL INTEREST INCOME		16,328	12,538		32,441		23,680
INTEREST EXPENSE:
Interest on deposits		2,464	1,096		4,750		1,967
Interest on short-term borrowings		2	7		221		76
Interest on long-term debt		272	67		489		81
TOTAL INTEREST EXPENSE		2,738	1,170		5,460		2,124
NET INTEREST INCOME		13,590	11,368		26,981		21,556
PROVISION (CREDIT) FOR LOAN LOSSES		54	224		(51	)	303
NET INTEREST INCOME AFTER PROVISION (CREDIT) FOR LOAN LOSSES		13,536	11,144		27,032		21,253
NON-INTEREST INCOME:
Fiduciary income		1,058	942		2,092		1,906
Service charges and fees on deposit accounts		1,497	1,426		2,805		2,731
Net gains (losses) on sales of debt securities		1	(1	)	(17	)	(1	)
Bank owned life insurance income		183	182		365		368
Gains from sales of loans		64	97		93		119
Other operating income		195	145		432		304
TOTAL NON-INTEREST INCOME		2,998	2,791		5,770		5,427
NON-INTEREST EXPENSE:
Salaries and employee benefits		6,243	5,128		12,405		10,105
Equipment expenses		278	268		544		521
Occupancy expense, net		744	658		1,507		1,385
State financial institutions tax		436	296		874		599
Marketing		297	284		599		416
Amortization of intangibles		260	188		517		373
FDIC insurance premiums		112	99		238		198
Contracted services		475	391		939		706
Other real estate owned		48	1		51		3
Merger-related expenses		20	855		87		1,613
Other non-interest expense		1,920	2,543		3,772		4,341
TOTAL NON-INTEREST EXPENSE		10,833	10,711		21,533		20,260
INCOME BEFORE INCOME TAXES		5,701	3,224		11,269		6,420
PROVISION FOR INCOME TAXES		973	486		1,914		969
NET INCOME	$	4,728	2,738		9,355		5,451
Dividends declared per common share	$	0.17	0.16		0.34		0.32
Earnings per common share:
Basic		0.36	0.25		0.71		0.52
Diluted		0.36	0.25		0.71		0.52
Weighted average common shares outstanding:
Basic		13,192,691	11,099,485		13,237,909		10,563,030
Diluted		13,196,665	11,105,014		13,241,752		10,568,792