LCNB (US:LCNB)2020-05-07 23:45PART I Financial Statements Presents LCNB Corp.'s unaudited consolidated condensed financial statements for Q1 2020, including balance sheets, income, and cash flows Consolidated Condensed Balance Sheets Presents the company's financial position, detailing assets, liabilities, and shareholders' equity as of March 31, 2020, and December 31, 2019 Consolidated Condensed Balance Sheet (Unaudited) | (Dollars in thousands) | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | ASSETS | | | | Total cash and cash equivalents | $24,795 | $20,765 | | Total Investment securities | $183,118 | $214,789 | | Loans, net | $1,267,379 | $1,239,406 | | Goodwill | $59,221 | $59,221 | | TOTAL ASSETS | $1,636,280 | $1,639,308 | | LIABILITIES | | | | Total deposits | $1,345,872 | $1,348,280 | | Long-term debt | $35,996 | $40,994 | | TOTAL LIABILITIES | $1,402,802 | $1,411,260 | | TOTAL SHAREHOLDERS' EQUITY | $233,478 | $228,048 | | TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $1,636,280 | $1,639,308 | Consolidated Condensed Statements of Income Details the company's revenues, expenses, and net income for the three months ended March 31, 2020, and 2019 Consolidated Condensed Statements of Income (Unaudited) | (Dollars in thousands, except per share data) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | NET INTEREST INCOME | $14,178 | $13,391 | | PROVISION (CREDIT) FOR LOAN LOSSES | $1,173 | ($105) | | NET INTEREST INCOME AFTER PROVISION | $13,005 | $13,496 | | TOTAL NON-INTEREST INCOME | $3,839 | $2,772 | | TOTAL NON-INTEREST EXPENSE | $11,072 | $10,700 | | INCOME BEFORE INCOME TAXES | $5,772 | $5,568 | | NET INCOME | $5,026 | $4,627 | | Diluted Earnings per common share | $0.39 | $0.35 | Consolidated Condensed Statements of Comprehensive Income Presents net income and other comprehensive income components, leading to total comprehensive income for the periods Consolidated Condensed Statements of Comprehensive Income (Unaudited) | (In thousands) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Net income | $5,026 | $4,627 | | Other comprehensive income, net of tax | $2,483 | $2,489 | | TOTAL COMPREHENSIVE INCOME | $7,509 | $7,116 | Consolidated Condensed Statements of Shareholders' Equity Outlines changes in shareholders' equity, including net income, comprehensive income, and dividends - Total shareholders' equity increased from $228.0 million at December 31, 2019, to $233.5 million at March 31, 2020, driven by $5.0 million net income and $2.5 million other comprehensive income, partially offset by $2.3 million common stock dividends23 Consolidated Condensed Statements of Cash Flows Summarizes cash inflows and outflows from operating, investing, and financing activities for the periods Consolidated Condensed Statements of Cash Flows (Unaudited) | (In thousands) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES | $1,305 | $2,323 | | NET CASH FLOWS PROVIDED BY INVESTING ACTIVITIES | $12,245 | $12,664 | | NET CASH FLOWS USED IN FINANCING ACTIVITIES | ($9,520) | ($15,500) | | NET CHANGE IN CASH AND CASH EQUIVALENTS | $4,030 | ($513) | Notes to Consolidated Condensed Financial Statements Provides detailed disclosures on accounting policies, financial statement account composition, and upcoming accounting changes like CECL Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses Q1 2020 financial results, COVID-19 impact, balance sheet, capital, and liquidity - Net income for Q1 2020 was $5.0 million ($0.39 per diluted share), an increase from $4.6 million ($0.35 per diluted share) in Q1 2019177 - The provision for loan losses significantly increased to $1.17 million in Q1 2020 from a $0.11 million credit in Q1 2019, largely due to the COVID-19 pandemic's economic impact191 Coronavirus Update/Status LCNB implemented measures in response to COVID-19, including branch adjustments, virtual meetings, payment deferrals, and PPP participation - Provided payment deferrals to over 500 loan customers with loans totaling approximately $369 million172 - Participated in the CARES Act Paycheck Protection Program (PPP), funding over $46 million in loans for over 300 small businesses through April 30, 2020172 Results of Operations Q1 2020 operating results show increased net income, driven by higher net interest and non-interest income, partially offset by increased loan loss provision and non-interest expenses Net Interest Income Analysis (Q1 2020 vs Q1 2019) | (In thousands) | Increase (Decrease) due to Volume | Increase (Decrease) due to Rate | Total Change | | :--- | :--- | :--- | :--- | | Total interest income | $60 | $314 | $374 | | Total interest expense | ($144) | ($200) | ($344) | | Net interest income | $204 | $514 | $718 | - Net interest income on a taxable-equivalent basis increased by $0.718 million, driven by a $43.7 million increase in average loan portfolio balance and decreased interest expense on deposits and borrowings186187188 - Non-interest income increased by $1.1 million, primarily from a $0.419 million increase in bank-owned life insurance income and $0.262 million from equity security sales gains193 - Non-interest expense rose by $0.372 million, mainly due to a 9.8% increase in salaries and employee benefits from wage increases and new hires196198 Financial Condition Total assets slightly decreased to $1.636 billion, driven by changes in debt securities, loans, and long-term debt, while shareholders' equity increased - Net loans increased by $28.0 million (2.26%) to $1.27 billion, driven by organic growth in commercial and industrial and real estate portfolios201 - Available-for-sale debt securities decreased by $36.6 million (20.54%), with proceeds reinvested into the loan portfolio and used for debt repayment201 - Total shareholders' equity increased by $5.4 million (2.38%) to $233.5 million, reflecting retained earnings and a $2.5 million increase in accumulated other comprehensive income201205 - Management assessed goodwill for impairment due to COVID-19 uncertainty, concluding fair value exceeded carrying value as of March 31, 2020205 Regulatory Capital LCNB and its bank subsidiary maintained "well-capitalized" status, with all capital ratios exceeding minimum regulatory requirements Bank's Regulatory Capital Ratios | Capital Ratios | March 31, 2020 | December 31, 2019 | Well-Capitalized Minimum | | :--- | :--- | :--- | :--- | | Common Equity Tier 1 Capital | 12.44% | 12.21% | 6.5% | | Tier 1 Capital | 12.44% | 12.21% | 8.0% | | Total Capital | 12.82% | 12.52% | 10.0% | | Leverage | 10.43% | 10.06% | 5.0% | Liquidity The company maintains sufficient liquidity through diverse funding sources, including deposits, FHLB borrowings, and credit lines - Primary funding sources include customer deposits, FHLB borrowings, and cash flows from loan and investment portfolios213 - At March 31, 2020, available liquidity included approximately $93.4 million from the FHLB and $55.0 million from correspondent bank lines of credit214 Quantitative and Qualitative Disclosures about Market Risk LCNB manages interest rate risk through ALCO, using IRSA and EVE analysis to model impacts of rate changes within acceptable ranges - The company does not use derivatives like interest rate swaps, caps, or floors to hedge interest rate risk221 Interest Rate Sensitivity Analysis (as of March 31, 2020) | Rate Shock Scenario (Basis Points) | % Change in Net Interest Income (NII) | % Change in Economic Value of Equity (EVE) | | :--- | :--- | :--- | | Up 200 | +1.86% | -9.45% | | Up 100 | +0.85% | -5.69% | | Base | — | — | | Down 100 | +0.21% | +13.30% | Controls and Procedures CEO and CFO concluded disclosure controls and procedures were effective as of March 31, 2020, with no material changes in internal control - The CEO and CFO concluded that LCNB's disclosure controls and procedures were effective as of March 31, 2020226 - No material changes in internal control over financial reporting occurred during the quarter227 PART II. OTHER INFORMATION Details the company's legal proceedings, risk factors, and information on unregistered sales of equity securities and use of proceeds Legal Proceedings The company is not a party to any material pending legal proceedings beyond routine business litigation - LCNB is not a party to any material pending legal proceedings outside of routine business litigation230 Risk Factors Discloses new risks from the COVID-19 pandemic, impacting credit, demand, interest rates, and market volatility - The COVID-19 pandemic has adversely impacted business and financial results, with the ultimate impact highly uncertain231 - Many commercial and residential borrowers face operational curtailment or unemployment, leading to expected increases in loan modifications and potential losses233 - The Federal Reserve's March 2020 rate cuts are expected to impact loan interest income, as many commercial and home equity loans are prime rate indexed234 - Market volatility affects fee income from trust and brokerage accounts and the fair value of equity and debt securities investments235 Unregistered Sales of Equity Securities and Use of Proceeds LCNB did not sell unregistered securities or repurchase shares during the quarter, with 100,000 shares remaining under the repurchase program - No shares were repurchased under the company's authorized program during the three months ended March 31, 2020241 - A maximum of 100,000 shares remain available for repurchase under the current program, authorized for up to five years from April 2019238241