LCNB (US:LCNB)2024-08-07 21:01Financial Performance - Net income for Q2 2024 was $925,000, down from $4,694,000 in Q2 2023, reflecting the impact of acquisition-related expenses [143]. - Net interest income for Q2 2024 increased to $15,217,000 from $14,177,000 in Q2 2023, driven by higher average loan balances and increased rates [144]. - Non-interest income for Q2 2024 rose to $4,080,000 from $3,646,000 in Q2 2023, primarily due to increased fiduciary income and net gains from residential mortgage loan sales [145]. - Non-interest expense for Q2 2024 was $17,825,000, up from $12,078,000 in Q2 2023, largely due to costs associated with acquisitions and additional personnel [146]. - The effective tax rate for Q2 2024 was 2.0%, significantly lower than 17.9% for the same period in 2023, primarily due to tax-exempt interest income and other tax-exempt earnings [170]. - LCNB recorded a provision for credit losses of $528,000 for Q2 2024, compared to $30,000 for the same period in 2023, reflecting a significant increase in credit loss provisions [163]. - Total non-interest expense for Q2 2024 was $17,825,000, an increase of $5,747,000 from $12,078,000 in Q2 2023, largely due to increased salaries and employee benefits and merger-related expenses [168]. Acquisitions and Mergers - The company completed the acquisition of Eagle Financial Bancorp on April 12, 2024, and Cincinnati Bancorp on November 1, 2023, impacting financial results [143]. - Average loan and deposit balances increased in 2024 due to the acquisitions of EFBI and CNNB [144]. - LCNB recorded an $843,000 pretax loss on the sale of approximately $48.9 million of below-market rate loans acquired from Cincinnati Bancorp [145]. - The increase in loan interest income was attributed to organic growth and loans acquired from mergers with EFBI and CNNB, contributing to the overall growth in the loan portfolio [159]. - Total deposits increased by $118,671 thousand, or 6.50%, primarily due to deposits acquired through the merger with EFBI and organic growth [173]. - Common shares increased by $13,558 thousand, or 7.81%, primarily due to stock issued as part of the acquisition price for EFBI [173]. Credit Losses and Provisions - Provision for credit losses for Q2 2024 was $528,000, significantly higher than $30,000 in Q2 2023, including $763,000 from non-PCD loans acquired in the Eagle Financial Bancorp merger [145]. - The total provision for credit losses for the six months ended June 30, 2024, was $653,000, compared to a net recovery of $27,000 for the same period in 2023, indicating a shift towards recognizing potential credit losses [163]. - Net charge-offs for the three and six months ended June 30, 2024 totaled $18,000 and $63,000, respectively, compared to $33,000 and $49,000 for the same periods in 2023 [165]. Interest Income and Expenses - Total interest income increased by $15,086,000, primarily due to a $14,612,000 increase in loan interest income driven by a $372.7 million increase in average loan balances and a 65 basis point increase in the average rate earned on the loan portfolio [159]. - Total interest expense rose by $14,109,000, mainly due to a $4,650,000 increase in interest expense for interest-bearing demand and money market deposits, a $7,199,000 increase for IRA and time certificates, and a $3,216,000 increase for long-term debt [160]. - The average yield on loans increased to 5.40% in 2024 from 4.75% in 2023, reflecting a 71 basis point rise due to higher market rates [155]. - The net interest rate spread decreased to 2.19% for the six months ended June 30, 2024, compared to 2.87% for the same period in 2023 [155]. Assets and Liabilities - Total assets as of June 30, 2024, were $2,349,775,000, up from $1,925,005,000 in 2023 [155]. - Long-term debt increased by $49,027 thousand, or 43.34%, due to additional advances from the FHLB of Cincinnati [173]. - Goodwill increased by $14,413 thousand, or 18.13%, primarily due to additional goodwill recognized from the EFBI acquisition [172]. - The ratio of interest-earning assets to interest-bearing liabilities was 127.82% for the six months ended June 30, 2024, down from 141.46% in 2023 [155]. Liquidity and Risk Management - Management believes LCNB has adequate liquidity to meet short and long-term requirements without operational problems [185]. - The bank's liquidity management ensures cash is available for borrowers, depositors, and operational needs [182]. - LCNB does not use derivatives to hedge interest rate risk and has not entered into any market risk instruments for trading purposes [188]. - The Interest Rate Sensitivity Analysis (IRSA) indicates that a 300 basis point increase in interest rates would result in a decrease of $2.453 million (3.27%) in net interest income (NII) [189]. - The Economic Value of Equity (EVE) analysis shows that a 300 basis point increase in interest rates would lead to a decrease of $29.094 million (18.32%) in EVE [190]. Regulatory and Legal Matters - No changes in internal control over financial reporting have materially affected LCNB's internal controls during the reporting period [193]. - LCNB is not involved in any material pending legal proceedings, aside from routine litigation incidental to its business [195].