LCNB Corp., the holding company for LCNB National Bank, and Cincinnati Bancorp, Inc. (CNNB) the holding company for Cincinnati Federal, announced they have signed a definitive merger agreement whereby LCNB will acquire CNNB in a stock-and-cash transaction.
CNNB operates five full-service branch offices in Cincinnati, OH and Northern Kentucky and has approximately $304.7 million in assets, $262.9 million in loans, $223.6 million of deposits and $40.3 million in consolidated stockholders’ equity as of March 31, 2023. When completed, the transaction will significantly increase LCNB’s existing presence in the Cincinnati market and expand LCNB’s community banking franchise across the Ohio River into the compelling Northern Kentucky market.
Subject to the terms of the merger agreement, which has been approved by the Board of Directors of each company, CNNB shareholders will have the opportunity to elect to receive either 0.9274 shares of LCNB stock or $17.21 per share in cash for each share of CNNB common stock owned, subject to 80 percent of all CNNB shares being exchanged for LCNB common stock. As of March 31, 2023, CNNB reported 2,884,171 shares of common stock outstanding, as well as 296,350 options with a weighted average strike price of $10.65 per share. Any unexercised stock options of CNNB will be canceled in exchange for a cash payment at the spread value of $17.21 per share over the exercise price. Based on the LCNB closing share price as of May 17, 2023, the transaction consideration is valued at $15.05 for each CNNB share or approximately $43.7 million in aggregate which equates to a 108.9 percent multiple of tangible book value, a 32.3x multiple on LTM earnings and a core deposit premium of 2.3 percent as of March 31, 2023. The transaction consideration is subject to dollar-for-dollar downward adjustment if CNNB’s adjusted shareholders’ equity, as defined in the merger agreement, is less than $36.8 million as measured three business days immediately before the closing date.
Eric Meilstrup, President and CEO of LCNB, said, “We are excited to announce this transaction. Cincinnati Federal, its Board of Directors and staff have a great reputation throughout Greater Cincinnati as a ‘service first’ organization with a focus on being a leading residential mortgage lender and commercial real estate lender in the market supported by dedicated and experienced personnel.”
Meilstrup continued, “We share the same goals and culture that the executive management team has established at Cincinnati Federal. LCNB National Bank is a 146-year-old community bank that was founded in Lebanon, Ohio, and serves 10 southwestern and south-central Ohio counties with 29 bank offices. The combining of our two institutions will provide more benefits, financial products and opportunities for CNNB customers, and create the premier community banking institution in the Cincinnati / Northern Kentucky market. We believe that the Cincinnati market is one of the most attractive markets in the Midwest, and this transaction should enhance LCNB’s long-term profitability metrics and earnings growth rate.”
Robert Bedinghaus, Chairman and CEO of CNNB, said, “We are very pleased to join forces with LCNB and continue our growth in the Cincinnati market. We greatly admire the community-focused approach that LCNB brings to banking, as well as their long history of success. We believe that our organizations will be very compatible, and we look forward to expanding our products and capacity to better serve our customers through this partnership with LCNB. The Cincinnati Federal team has tremendous customer relationships in our market. At times, we have been constrained by our lending limit and our funding base, and we have not been able to fully meet the needs of some of our customers. This will all change as we become part of a larger community bank in LCNB. In addition, LCNB has a broader array of products and services, including trust and wealth management, which will be helpful to our customers. We also believe that our employees will continue to grow and thrive as part of a larger community bank with such an outstanding reputation. Based on the consideration mix of 80 percent stock/20 percent cash, LCNB’s closing price of $15.65 on May 17, 2023, and the special dividend declared by CNNB on April 20, 2022, the transaction represents a 162.3 percent total return to our original shareholders and a 60.5 percent total return for those shareholders that invested in our second-step offering in January 2020. Our shareholders will also benefit from having the opportunity to elect to receive a more liquid stock that offers a very attractive dividend yield. On a per share equivalent basis, CNNB shareholders would receive a pro forma annual dividend of $0.78 per share based on LCNB’s current quarterly dividend.”
Following the merger, Bedinghaus and Gregory Meyers, Senior Vice President and Chief Lending Officer of CNNB and Cincinnati Federal, will join LCNB in a consulting capacity to assist with employee and customer integration. In addition, the merger agreement also provides that the LCNB board of directors intends to appoint Bedinghaus to the boards of LCNB and LCNB National Bank immediately after closing.
Excluding one-time transaction costs, LCNB expects the transaction to be approximately 18.2 percent and 26.2 percent accretive to 2024 and 2025 fully diluted earnings per share, respectively. One-time transaction costs to be incurred by LCNB are estimated at $7.3 million after-tax. Tangible book value per share dilution is expected to be approximately 6.6 percent at closing, with an expected tangible book value earn-back of approximately 2.3 years using the crossover method. Excluding any rate-related purchase accounting adjustments, the expected tangible book value earn-back would be approximately 1.6 years using the crossover method.
When the transaction is completed, LCNB is estimated to have consolidated assets of approximately $2.3 billion with 33 banking offices in Ohio and one branch office in Northern Kentucky. Subject to regulatory approval, CNNB shareholder approval and other customary conditions set forth in the definitive merger agreement, the transaction is anticipated to close in the fourth quarter of 2023. LCNB shareholder approval is not required. At closing, Cincinnati Federal branches will become branches of LCNB National Bank.
LCNB is being advised by Janney Montgomery Scott LLC and Dinsmore & Shohl LLP. CNNB is being advised by Piper Sandler & Co. and Luse Gorman, PC.