-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Rvt9dqUPf/WyA7gmiD79hcOKUKEnMZsZmqjmR0OhXetpnQdQapj3FLRn95X1vxcL jwOg/cioteAm3DQMildQVA== 0000737210-97-000018.txt : 19970814 0000737210-97-000018.hdr.sgml : 19970814 ACCESSION NUMBER: 0000737210-97-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970813 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: LNB BANCORP INC CENTRAL INDEX KEY: 0000737210 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 341406303 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13203 FILM NUMBER: 97659016 BUSINESS ADDRESS: STREET 1: 457 BROADWAY CITY: LORAIN STATE: OH ZIP: 44052-1769 BUSINESS PHONE: 2162446000 10-Q 1 1 Form 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-13203 LNB Bancorp, Inc. (Exact name of the registrant as specified in its charter) Ohio 34-1406303 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 457 Broadway, Lorain, Ohio 44052 - 1769 (Address of principal executive offices) (Zip Code) (216) 244 - 6000 Registrant's telephone number, including area code Not Applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such requirements for the past 90 days. YES X NO Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Outstanding at August 1, 1997: 4,138,279 shares Class of Common Stock: $1.00 par value 2 LNB Bancorp, Inc. Quarterly Report on Form 10-Q Quarter Ended June 30, 1997 Part I - Financial Information Item 1 - Financial Statements Interim financial information required by Requisition 210.10-01 of Regulation S-X is included in this Form 10-Q as referenced below: Page Number(s) Condensed Consolidated Balance Sheets 3 Condensed Consolidated Statements of Income 4 Condensed Consolidated Statements of 8 Cash Flows Notes to the Condensed Consolidated Financial 10 Statements Item 2 - Management's Discussion and Analysis 13 of Financial Condition and Results of Operations Part II - Other Information Item 1 - Legal Proceedings 17 Item 2 - Changes in Securities 17 Item 3 - Defaults upon Senior Securities 17 Item 4 - Submission of matters to a Vote of 17 Security Holders Item 5 - Other Information 17 Item 6 - Exhibits and Reports on Form 8-K 17 Signatures 17 Exhibit Index 18 3 FORM 10-Q LNB BANCORP, INC. PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS JUNE 30, DECEMBER 31, CONDENSED CONSOLIDATED BALANCE SHEETS 1997 1996 ------------- ------------- (Unaudited) (See Note 1) ASSETS: Cash and due from banks $ 24,240,000 $ 18,890,000 Federal funds sold and other interest bearing instruments 235,000 103,000 Securities: Securities available for sale 14,346,000 16,102,000 Investment securities 94,229,000 88,858,000 ------------ ------------ Total Securities 108,575,000 104,960,000 (Market value $108,907,000 and $105,639,000, respectively) Total Loans 311,568,000 302,073,000 Reserve for possible loan losses (4,238,000) (4,116,000) ------------ ------------ Net loans 307,330,000 297,957,000 ------------ ------------ Premises and equipment, net 10,876,000 10,893,000 Other assets 5,733,000 5,440,000 ------------ ------------ TOTAL ASSETS $456,989,000 $438,243,000 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY: Noninterest-bearing deposits $ 59,238,000 $ 63,802,000 Interest-bearing deposits 325,245,000 302,578,000 ------------ ------------ Total deposits 384,483,000 366,380,000 Federal funds purchased and Securities sold under repurchase agreements and other short-term borrowings 24,566,000 23,386,000 Federal Home Loan Bank advances 1,095,000 1,095,000 Other liabilities 3,255,000 3,184,000 ------------ ------------ Total Liabilities 413,399,000 394,045,000 Shareholders' equity: Common stock $1.00 par: Authorized 5,000,000 Issued 4,222,275 and 4,138,533, respectively 4,222,000 4,138,000 Additional capital 22,597,000 20,178,000 Retained earnings 19,185,000 19,873,000 Net unrealized security gains 22,000 9,000 Treasury Stock at cost, 83,996 and -0- shares respectively (2,436,000) -0- ------------ ------------ Total Shareholders' Equity 43,590,000 44,198,000 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $456,989,000 $438,243,000 ============ ============ Note 1: The consolidated balance sheet at December 31, 1996 has been taken from the audited Financial Statements and condensed. See notes to condensed consolidated financial statements. 4 FORM 10-Q LNB BANCORP, INC. Unaudited PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS SIX MONTHS ENDED CONDENSED CONSOLIDATED STATEMENTS JUNE 30, OF INCOME ---------------------- 1997 1996 INTEREST INCOME ------------------------- Interest and fees on loans: Taxable $13,560,000 $12,615,000 Tax-exempt 25,000 31,000 Interest and dividends on securities: Taxable 3,157,000 3,025,000 Tax-exempt 71,000 135,000 Interest on Federal funds sold and other interest bearing instruments 37,000 118,000 ----------- ----------- TOTAL INTEREST INCOME 16,850,000 15,924,000 ----------- ----------- INTEREST EXPENSE: Interest on certificates of deposit of $100,000 or more 1,151,000 897,000 Interest on other deposits 4,417,000 4,300,000 Interest on securities sold under repurchase agreements and other short-term borrowings 553,000 451,000 Interest on Federal Home Loan Bank advances 35,000 -0- ----------- ----------- TOTAL INTEREST EXPENSE 6,156,000 5,648,000 ----------- ----------- NET INTEREST INCOME 10,694,000 10,276,000 Provision for possible loan losses 250,000 300,000 NET INTEREST INCOME AFTER PROVISION ----------- ----------- FOR POSSIBLE LOAN LOSSES 10,444,000 9,976,000 ----------- ----------- OTHER INCOME: Trust division income 577,000 536,000 Service charges on deposit accounts 1,093,000 1,010,000 Other charges, fees and exchanges 1,002,000 851,000 Other operating income 20,000 51,000 ----------- ----------- TOTAL OTHER INCOME 2,692,000 2,448,000 STATEMENT CONTINUED ON NEXT PAGE 5 STATEMENT CONTINUED FROM PREVIOUS PAGE OTHER EXPENSES: Salaries and employee benefits 4,137,000 4,010,000 Net occupancy expense 643,000 639,000 Furniture and equipment expense 1,126,000 1,078,000 Supplies and postage 470,000 468,000 Ohio Franchise Tax 252,000 290,000 Other operating expenses 1,762,000 1,816,000 ------------ ------------ TOTAL OTHER EXPENSES 8,390,000 8,301,000 ------------ ------------ INCOME BEFORE FEDERAL INCOME TAXES 4,746,000 4,123,000 FEDERAL INCOME TAXES 1,626,000 1,346,000 ------------ ------------ NET INCOME $ 3,120,000 $ 2,777,000 ============ ============ PER SHARE DATA: EARNINGS $ .74 $ .66 ====== ====== CASH DIVIDENDS $ .32 $ .27 ====== ====== See notes to condensed consolidated financial statements. 6 FORM 10-Q LNB BANCORP, INC. Unaudited PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS THREE MONTHS ENDED CONDENSED CONSOLIDATED STATEMENTS JUNE 30, OF INCOME ---------------------- 1997 1996 INTEREST INCOME ---------------------- Interest and fees on loans: Taxable $ 6,918,000 $ 6,373,000 Tax-exempt 12,000 15,000 Interest and dividends on securities: Taxable 1,601,000 1,525,000 Tax-exempt 36,000 62,000 Interest on Federal funds sold and other interest bearing instruments 27,000 57,000 ----------- ----------- TOTAL INTEREST INCOME 8,594,000 8,032,000 ----------- ----------- INTEREST EXPENSE: Interest on certificates of deposit of $100,000 or more 593,000 453,000 Interest on other deposits 2,245,000 2,104,000 Interest on securities sold under repurchase agreements and other short-term borrowings 301,000 213,000 Interest on Federal Home Loan Bank advances 18,000 -0- ----------- ----------- TOTAL INTEREST EXPENSE 3,157,000 2,770,000 ----------- ----------- NET INTEREST INCOME 5,437,000 5,262,000 Provision for possible loan losses 125,000 175,000 NET INTEREST INCOME AFTER PROVISION ----------- ----------- FOR POSSIBLE LOAN LOSSES 5,312,000 5,087,000 ----------- ----------- OTHER INCOME: Trust division income 299,000 258,000 Service charges on deposit accounts 548,000 526,000 Other charges, fees and exchanges 542,000 428,000 Other operating income 10,000 15,000 ----------- ----------- TOTAL OTHER INCOME 1,399,000 1,227,000 STATEMENT CONTINUED ON NEXT PAGE 7 STATEMENT CONTINUED FROM PREVIOUS PAGE OTHER EXPENSES: Salaries and employee benefits 2,129,000 2,024,000 Net occupancy expense 314,000 311,000 Furniture and equipment expense 565,000 537,000 Supplies and postage 223,000 223,000 Ohio Franchise Tax 123,000 143,000 Other operating expenses 923,000 935,000 ------------ ------------ TOTAL OTHER EXPENSES 4,277,000 4,173,000 ------------ ------------ INCOME BEFORE FEDERAL INCOME TAXES 2,434,000 2,141,000 FEDERAL INCOME TAXES 839,000 690,000 ------------ ------------ NET INCOME $ 1,595,000 $ 1,451,000 ============ ============ PER SHARE DATA: EARNINGS $ .38 $ .35 ====== ===== CASH DIVIDENDS $ .16 $ .14 ====== ===== See notes to condensed consolidated financial statements. 8 FORM 10-Q LNB BANCORP, INC. Unaudited PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS SIX MONTHS ENDED CONDENSED CONSOLIDATED STATEMENTS JUNE 30, OF CASH FLOWS --------------------- 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES: ------------------------- Interest received $16,715,000 $14,906,000 Other income received 2,696,000 2,010,000 Interest paid (6,013,000) (5,365,000) Cash paid for salaries and benefits (3,952,000) (3,701,000) Net occupancy expense of premises paid (457,000) (446,000) Furniture and equipment expenses paid (404,000) (369,000) Cash paid for supplies and postage (470,000) (459,000) Cash paid for other operating expenses (2,257,000) (3,377,000) Federal income taxes paid (1,500,000) (955,000) ----------- ---------- NET CASH PROVIDED BY OPERATING ACTIVITIES 4,358,000 2,244,000 ----------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceed from maturities of securities available for sale 2,130,000 1,921,000 Proceeds from maturities of investment securities 7,920,000 15,088,000 Purchases of securities available for sale (2,077,000) (2,468,000) Purchases of investment securities (11,575,000) (20,187,000) Net decrease in credit card loans 439,000 500,000 Net (increase) in long-term loans (10,252,000) (12,599,000) Purchases of bank premises, equipment and software (879,000) (1,214,000) ----------- ---------- NET CASH USED IN INVESTING ACTIVITIES (14,294,000) (18,959,000) ----------- ---------- STATEMENT CONTINUED ON NEXT PAGE 9 STATEMENT CONTINUED FROM PREVIOUS PAGE CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in demand and other noninterest-bearing deposits (4,564,000) 2,592,000 Net increase (decrease) in savings and passbook deposits 6,945,000 (12,207,000) Net increase in time deposits 15,722,000 24,554,000 Net increase (decrease) in Federal funds purchased and other interest bearing instruments (1,220,000) 2,125,000 Proceeds from line of credit 2,400,000 -0- Proceeds from exercise of stock options 19,000 96,000 Purchase of Treasury Stock (2,436,000) -0- Dividends paid (1,448,000) (1,025,000) ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES 15,418,000 16,135,000 ----------- ----------- NET INCREASE (DECREASE)IN CASH AND CASH EQUIVALENTS 5,482,000 (580,000) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 18,993,000 21,275,000 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF QUARTER $24,475,000 $20,695,000 =========== =========== See notes to condensed consolidated financial statements. 10 FORM 10-Q LNB Bancorp, Inc. Unaudited PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INTRODUCTION The following areas of discussion pertain to the condensed consolidated financial statements of LNB Bancorp, Inc. at June 30, 1997, compared to December 31, 1996 and the results of operations for the six months ending June 30, 1997 compared to the same period in 1996. It is the intent of this discussion to provide the reader with a more thorough understanding of the condensed consolidated financial statements and supporting schedules, and should be read in conjunction with those condensed consolidated financial statements and schedules. LNB Bancorp, Inc. is not aware of any trends, events, or uncertainties that might have a material effect on the soundness of operations; neither is LNB Bancorp, Inc. aware of any proposed recommendations by regulatory authorities which would have a similar effect if implemented. BASIS OF PRESENTATION The unaudited condensed consolidated balance sheet as of June 30, 1997, the condensed consolidated statements of income and the condensed consolidated statements of cash flows for the six months ended June 30, 1997 and 1996 are prepared in accordance with generally accepted accounting principles for interim financial information. The above mentioned statements reflect all normal and recurring adjustments which are, in the opinion of Management, necessary for a fair presentation of the financial position and the results of operations for the interim periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Corporation's December 31, 1996 Annual Report to Shareholders. The results of operations for the period ended June 30, 1997 are not necessarily indicative of the operating results for the full year. RESERVE FOR POSSIBLE LOAN LOSSES Because some loans may not be repaid in full, a reserve for possible loan losses is recorded. This reserve is increased by provisions charged to earnings and is reduced by loan charge-offs, net of recoveries. Estimating the risk of loss on any loan is necessarily subjective. Accordingly, the reserve is maintained by Management at a level considered adequate to cover possible loan losses that are currently anticipated based on Management's evaluation of several key factors including information about specific borrower situations, their financial position and collateral values, current economic conditions, changes in the mix and levels of the various types of loans, past charge-off experience and other pertinent 11 information. The reserve for possible loan losses is based on estimates using currently available information, and ultimate losses may vary from current estimates due to changes in circumstances. These estimates are reviewed periodically and, as adjustments become necessary, they are reported in earnings in the periods in which they become known. While Management may periodically allocate portions of the reserve for specific problem situations, the entire reserve is available for any charge-offs that may occur. Charge-offs are made against the reserve for possible loan losses when Management concludes that it is probable that all or a portion of a loan is uncollectible. After a loan is charged-off, collection efforts continue and future recoveries may occur. The Corporation adopted the provision of Statement of Financial Accounting Standards No. 114 (SFAS No. 114), "Accounting by Creditors for Impairment of a Loan" and SFAS No. 118 "Accounting for Creditors for Impairment of a Loan - Income Recognition and Disclosure" on January 1, 1995. SFAS No. 114 provides guidelines for measuring impairment losses on loans. Under SFAS No. 114, a loan is considered impaired, based on current information and events, if it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. The measurement of impaired loans is generally based on the present value of the expected future cash flows discounted at the loans initial effective interest rate, except that all collateral-dependent loans are measured for impairment based on the fair value of the collateral. If the loan valuation is less than the recorded value of the loan, an impairment reserve must be established for the difference. The impairment reserve is established by either an allocation of the reserve for possible loan losses or by a provision for possible loan losses, depending upon the adequacy of the reserve for possible loan losses. SFAS No. 118 permits existing income recognition practices to continue. RECLASSIFICATIONS Certain 1996 amounts have been reclassified to conform to 1997 presentation. 2. PER SHARE DATA The Corporation adopted SFAS No. 128 "Earnings Per Share" on January 1, 1997. This Statement specifies the computation, presentation and disclosure requirements for earnings per share, for entities with publicly held common stock or potential common stock. The per share data has been adjusted to reflect the two percent stock dividend in 1996. 12 In accordance with SFAS No. 128, Earnings per share is calculated as follows: For the Quarter ended June 30, 1997 Income Shares Per-Share (Numerator) (Denominator) Amount Income before extraordinary Item and accounting change $3,120,000 Basic EPS Income available to common stockholders $3,120,000 4,205,534 $ .74 ===== Effect of Dilutive Securities Incentive Stock Options -0- 11,038 ---------- --------- Dilutive EPS Income available to common stockholders + assumed conversions $3,120,000 4,216,572 $ .74 ========== ========= ===== 3. DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE The Corporation adopted SFAS No. 129 "Disclosure of Information about Capital Structure" on January 1, 1997. This statement requires in summary form within the financial statements, the pertinent rights and privileges of the various securities outstanding. Corporate Management has determined that the adoption of SFAS No. 129 will increase year-end disclosure requirements for capital. 4. CONTINGENCY AND COMMITMENT On April 14, 1997, LNB Bancorp, Inc. (the "Corporation"), the holding company for Lorain National Bank (the "Bank"), issued a news release announcing that the Bank had entered into a Branch Purchase and Assumption Agreement to acquire three branch offices located in Lorain County, Ohio, and approximately $55 million of deposits and consumer loans totaling nearly $18 million from KeyBank National Association, Cleveland, Ohio ("Seller"). Consummation of the transaction is subject to, among other conditions, regulatory approval. On May 28, 1997, the Office of the Comptroller of Currency granted approval to Lorain National Bank to effect the above mentioned Branch Purchase and Assumption Agreement with KeyBank National Association. The Bank's management team is diligently working on this agreement. 13 PART I - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATION FINANCIAL CONDITION Total assets of the Corporation increased $18,746,000 during the first half of 1997, to $456,989,000. This growth is attributable to increases in savings deposits, certificates of deposit, and checkinvest accounts. Federal funds sold and other interest bearing investments increased by $132,000 during the first six months of 1997. Total investment securities increased $3,615,000 ending the first half at $108,575,000. At June 30, 1997 unrealized gains (losses) in the investment securities portfolio were approximately $711,000 and ($316,000), respectively. Nonperforming assets at June 30, 1997 totaled $376,000, down from $597,000 at March 31, 1997. The second quarter decrease in nonperforming assets of $221,000 resulted from loans being brought current in the amount of $14,000 loans charged-off in the amount of $13,000 liquidations of nonaccrual loans of $398,000 and increases in nonaccrual loans of $204,000. The level of nonperforming assets decreased $207,000 during the first quarter 1997. The first quarter decrease is the result of a net decrease in nonaccrual loans plus a decrease in other real estate owned. The decrease in nonaccrual loans is due to decreases in nonaccrual principal balances of $243,000 which have been paid off and brought current and increases in nonaccrual principal balances of $75,000. The decrease in nonaccrual loans in the first quarter of 1997 was due primarily to two commercial loan customers which included recoveries from the Small Business Administration. The level of nonperforming assets at June 30, 1997 remained at relatively low levels and Corporate management believes nonperforming assets are well collateralized. The table below presents the level of nonperforming assets at the end of the last four calendar quarters. Amounts in thousands 06/30/97 03/31/97 12/31/96 09/30/96 -------- -------- -------- -------- Nonperforming Assets: Nonaccrual $ 376 $ 597 $ 765 $ 941 Restructured 0 0 0 0 Other Real Estate Owned 0 0 39 39 ------ ------ ------ ------ Total Nonperforming Assets $ 376 $ 597 $ 804 $ 980 ====== ====== ====== ====== Reserve for possible loan losses to total nonperforming assets 1,127.1% 684.4% 511.9% 419.6% ======== ====== ====== ====== Accruing loans past due 90 days 271 180 357 396 ====== ====== ====== ====== Net loans increased $9,373,000 during the first half to $307,330,000 at June 30, 1997. The reserve for possible loan losses ended the quarter at 14 4,238,000 supported by a provision for loan losses of $250,000, recoveries of $98,000 and loan charge-offs of $226,000. The reserve for possible loan losses as a percentage of ending loans was 1.36% and 1.36% at December 31, 1996 and June 30, 1997, respectively. Corporate management believes that the level of the reserve for possible loan losses is adequate based upon quantitative analysis of identified risks and analysis of historical trends. The Corporation's credit policies are reviewed and modified on an ongoing basis in order to remain suitable for the management of credit risk within the loan portfolio as conditions change. At June 30, 1997 there are no significant concentrations of credit in the loan portfolio. The Corporation had outstanding loan and credit commitments to make loans totaling $62,817,000 and $69,762,000 at June 30, 1997 and 1996, respectively. The decrease in outstanding loan commitments results from a softening in loan demand in Commercial real Estate and Mortgages loans. Total deposits increased $18,103,000 during the first half to $384,438,000. Non-interest bearing deposits decreased to $59,238,000, at June 30, 1997 for a decrease of $4,564,000, while interest bearing deposits climbed to $325,245,000 for an increase of $22,667,000. Federal funds sold and securities sold under agreements to repurchase increased $1,180,000 during the first half. Due to the volatility of customer repurchase agreements, most funds generated by repurchase activity enter the Corporation's earning assets as short-term investments. LIQUIDITY Liquidity measures a corporation's ability to generate cash or otherwise obtain funds at reasonable prices to fund commitments to borrowers as well as the demand of depositors and debt holders. Principal internal sources of liquidity for the Corporation and the Bank are cash and cash equivalents, Federal funds sold, and the maturity structures of investment securities and portfolio loans. Securities and loans available for sale provide another source of liquidity through the cash flows of these interest bearing assets as they mature or are sold. The Corporation continues to maintain a relatively high liquid position in order to take advantage of interest rate fluctuations. As of June 30, 1997, short-term security investments with maturities of one year or less totalled $29,685,000, which represented 27.3% of total securities. Adding cash and due from banks of $24,240,000, and Federal Funds sold and other interest bearing instruments of $235,000, total liquid assets represented 11.9% of total assets. CAPITAL RESOURCES Total shareholders' equity decreased $608,000 during the first half of 1997 to $43,590,000, at June 30, 1997. The decrease resulted primarily from $3,120,000 of net income generated from the first six months of operations less a cash dividend payable to shareholders of $1,324,000, less Treasury Stock purchased at cost in the amount of $2,436,000. Financial Accounting Standards Board Statement No. 115, "Accounting for Certain Investments in Debt and Equity Securities", requires that securities which the Bank has classified as "Available-for-Sale" are recorded at market value with any adjustments recorded to equity. The increase in interest rates experienced in the first half of 1997 has caused a decrease in the market value of these securities which resulted 15 in an increase of shareholders' equity by $13,000 for the six months ended June 30, 1997. The Corporation continues to monitor growth to stay within the constraints established by the regulatory authorities. Under Federal banking regulations, an institution is deemed to be well-capitalized if it has a Risk-based Tier 1 capital ratio of 6.00 percent or greater, a Risk- based Total capital ratio of 10.00 percent or greater and a Leverage ratio of 5.00 percent or greater. The Corporation's Risk-based capital and Leverage ratios have exceeded the ratios for a well-capitalized financial institution for all periods presented above. The Corporation's capital and leverage ratios as of June 30, 1997 and 1996 follow. June 30, --------------------- 1997 1996 ------ ------ Tier I capital ratio 16.13% 16.93% Required Tier I capital ratio 4.00% 4.00% Total capital ratio 17.38% 18.18% Required total capital ratio 8.00% 8.00% Leverage ratio 9.81% 10.21% Required leverage ratio 3.00% 3.00% On an ongoing basis the Corporation analyzes acquisition opportunities in markets which are adjacent to or within the Corporation's current geographical market. Corporate management believes that it's current capital resources are sufficient to support any foreseeable acquisition activity, in addition to the purchase of three branch offices from KeyBank National Association. Lorain National Bank has signed agreements for the expansion and remodeling of its Kansas Avenue Branch Office. Construction began in May and is expected to be completed by August 1997. Total construction costs plus new equipment is expected to be $450,000. There were no other material commitments outstanding at June 30, 1997, other than the Branch Purchase and Assumption Agreement with KeyBank National Association and the construction and remodeling contracts for the Kansas Avenue Branch Office. RESULTS OF OPERATIONS Interest and fees on loans for the first half of 1997 increased $939,000 when compared to the first half of 1996. This was the result of the impact of slight increases in interest rates along with loan portfolio growth. Interest and dividends on securities was $3,228,000 for the first half of 1997 for an increase of $68,000 over the same period in 1996. Interest and dividends on securities represented 19.2% of total interest income at June 30, 1997 compared to 19.8% at June 30, 1996. Interest on Federal funds sold and other interest bearing instruments was $37,000 at June 30, 1997 compared to $118,000 at June 30, 1996. The decrease resulted from higher rates which were more than offset by the decrease in the average balance invested in these forms of financial instruments. Total interest expense increased by $508,000 when compared to the first half of 1996. The increase resulted from increases in average balances of savings, certificates of deposit and checkinvest accounts along with increases in interest rates on certificates of deposit. 16 Total other income increased by $244,000 when compared to the first half of 1996. This increase resulted from increases in income from fiduciary fees of $41,000, increases in service charges of $83,000 and increases in other charges of $151,000. The increase in service charges is due, in part, to reevaluating the assessment of transaction account charges. The increase in other charges is due to increases in ATM fees. The Corporation continuously monitors non-interest expenses for greater profitability. The entire staff is geared to improving productivity at all levels. Non-interest expense for the six months ended June 30, 1997 was $8,390,000, 1.1% above the first six months of 1996. This increase was due primarily to increases in salaries and benefits, net occupancy expense, furniture and equipment expense, and the impacts of inflation. The effective tax rate increased from 32.8% during the first half of 1996 to 34.3% during the first half of 1997. The increase in the effective tax rate is due primarily to the decreases in tax exempt interest income. Net income was $3,120,000 and $2,777,000 for the six months ended June 30, 1997 and 1996, respectively. Net income per share after adjusting for the two percent stock dividend in 1997 and 1996 was $.74 and $.66 for the six months ended June 30, 1997 and 1996, respectively. IMPACTS OF ACCOUNTING AND REGULATORY PRONOUNCEMENTS Corporate management is not aware of any current recommendations by the Financial Accounting Standards Board or by regulatory authorities which, if they were implemented, would have a material effect on the liquidity, capital resources or operations of the Corporation. However, the potential impact of certain accounting and regulatory pronouncements warrant further discussion. The Financial Accounting Standards Board (FASB) has issued: SFAS No. 130, "Reporting Comprehensive Income" Implementation date by the Corporation: January 1, 1998 Impact on the Corporation: This Statement provides accounting and reporting standards for reporting and display of comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of general-purpose financial statements. Corporate management does not believe that adoption of SFAS No. 130 will have a significant impact on net income, but will increase reporting requirements. SFAS No. 131, "Disclosures about segments of an Enterprise and Related Information" Implementation date by the Corporation: January 1, 1998 Impact on the Corporation: This Statement provides accounting and reports standards about opening segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. Corporate management does not believe that adoption of SFAS No. 131 will have a significant impact on net income but will increase disclosure requirements. 17 Part II - OTHER INFORMATION ITEM 1 - Legal Proceedings None ITEM 2 - Changes in Securities None ITEM 3 - Defaults Upon Senior Securities None ITEM 4 - Submission of Matters to a Vote of Security Holders None ITEM 5 - Other Information None ITEM 6 - Exhibits and Reports on Form 8-K (a) Exhibit (11) - Computation of Shares Used for Earnings Per Share Calculation. (b) Exhibit (13) - Second Quarter Report to shareholders of LNB Bancorp, Inc., June 30, 1997. (c) Reports on Form 8-K There were no reports on Form 8-K filed for the six months ended June 30, 1997. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LNB BANCORP, INC. (registrant) Date: August 11, 1997 /s/ Gregory D. Friedman _________________________ Gregory D. Friedman, Senior Vice President, Chief Operating Officer and Chief Financial Officer Date: August 11, 1997 /s/ Mitchell J. Fallis _________________________ Mitchell J. Fallis, Vice President and Chief Accounting Officer 18 LNB Bancorp, Inc. Form 10-Q Exhibit Index Pursuant to Item 601 (a) of Regulation S-K S-K Reference Exhibit (11) Computation of Shares Used for Earnings Per Share Calculations (13) Second Quarter Report to Shareholders of LNB Bancorp, Inc. June 30, 1997 - EDGAR Version (27) Financial Data Schedule 19 LNB Bancorp, Inc. Exhibit to Form 10-Q (For the six months ended June 30, 1997) S - K Reference Number (11) Computation of Shares Used for Earnings Per Share Calculation. Six Months Ended June 30 ---------------------- 1997 1996 --------- --------- Weighted Average Shares Outstanding 4,205,534 4,123,600 Common Stock Equivalents (Stock Options) 11,038 16,825 --------- --------- 4,216,572 4,140,425 ========= ========= 20 LNB Bancorp, Inc. Exhibit to Form 10 - Q (For the six months ended June 30, 1997) S - K Reference Number (13) Second Quarter Report to Shareholders of LNB Bancorp, Inc. (dated June 30, 1997) EDGAR Version Description: Two sided pamphlet: Backside cover containing the list of Director's of LNB Bancorp, Inc., Officers of LNB Bancorp, Inc. and Directors Emeritus of Lorain National Bank and outside beige cover with brown lettering stating LNB Bancorp, Inc., Quarterly Report, a picture of five hands pulling on a rope with a hoist, June 30, 1997 along with logo. Inside contains: Message to Our Shareholders, unaudited EDGAR Version Consolidated Balance Sheets for period ending June 30, 1997 and June 30, 1996 and unaudited Consolidated Statements of Income for the Six Months Ended June 30, 1997 and June 30, 1996. 21 Message to Our Shareholders It's a pleasure, once again, to report on the progress of LNB Bancorp, Inc., and its subsidiary, Lorain National Bank, after the first six months of 1997. We are pleased to announce that earnings have increased 12.4 percent for the first half of the year, compared to the same period one year ago. Consolidated net income for the first six months of 1997 reached $3,120,000, up from $2,777,000 for the comparative period in 1996. Our performance continues to strengthen, as indicated by our steadily increasing annualized return on average assets, which reached 1.41 percent at mid-year. Year-to-date cash dividends declared to shareholders has increased 13.1 percent over the comparative period in 1996. Total shareholders' equity also increased $1.2 million during the 12 months ended June 30, 1997 and total shareholders' equity, as a percentage of total assets, reached 9.5 percent. Total assets rose 7.7 percent to $456,989,000 as of June 30, 1997. Net loans increased to $307,330,000 at June 30, 1997. This represents an increase of $26 million or 9.1 percent over the net loans at June 30, 1996. During the second quarter, we welcomed Terry D. Goode to the Board of Directors of LNB Bancorp, Inc. and its subsidiary Lorain National Bank. Mr. Goode is Vice President and Co-owner of the Lorain County Title Company of Elyria. As mentioned during our Annual Meeting in April, we are acquiring three branch offices from KeyBank in Lorain and Elyria. Our management team is busy preparing for the acquisition and the arrival of many new customers to Lorain National Bank. We look forward to providing our new customers with the same high quality personal service on which we have built our reputation. We thank you for your continued support and look forward to addressing you after the completion of another year of successful operations. Sincerely, /s/ Stanley G. Pijor /s/ J. F. Kidd ------------------------ ----------------- Stanley G. Pijor James F. Kidd Chairman of the Board President and Chief Executive Officer 22 Consolidated Balance Sheets June 30 -------------------------- 1997 1996 ------------ ------------ ASSETS: Cash and Due From Banks $ 24,240,000 $ 24,131,000 Federal Funds Sold and other Interest Bearing Instruments 235,000 705,000 Securities Available for Sale 14,346,000 14,424,000 Investment Securities 94,229,000 86,624,000 Loans 311,568,000 285,655,000 Reserve for Possible Loan Losses (4,238,000) (3,995,000) - -------------------------------------------------------------------------- NET LOANS 307,330,000 281,660,000 - -------------------------------------------------------------------------- Premises and Equipment (net) 10,876,000 10,871,000 Other Assets 5,733,000 6,073,000 - -------------------------------------------------------------------------- TOTAL ASSETS $456,989,000 $424,488,000 - -------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY: Non-Interest Bearing Deposits $ 59,238,000 $ 61,554,000 Interest Bearing Deposits 325,245,000 296,013,000 - -------------------------------------------------------------------------- TOTAL DEPOSITS 384,483,000 357,567,000 - -------------------------------------------------------------------------- Securities Sold under Repurchase Agreements and Other Short-term Borrowings 24,566,000 21,514,000 Federal Home Loan Bank Advances 1,095,000 -0- Other Liabilities 3,255,000 2,998,000 - -------------------------------------------------------------------------- TOTAL LIABILITIES 413,399,000 382,079,000 - -------------------------------------------------------------------------- Common stock 4,222,000 4,126,000 Additional capital 22,597,000 20,077,000 Retained Earnings 19,185,000 18,247,000 Net Unrealized Security Gains(Losses) 22,000 (41,000) Treasury Stock at Cost (2,436,000) -0- - -------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 43,590,000 42,409,000 - -------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $456,989,000 $424,488,000 - -------------------------------------------------------------------------- (LOGO) LNB Bancorp, Inc. and its subsidiary Lorain National Bank 23 Consolidated Statements of Income Six Months Ended June 30 ------------------------ 1997 1996 ------------------------ INTEREST INCOME: Interest and Fees on Loans $13,585,000 $12,646,000 Interest and Dividends on Securities: 3,231,000 3,163,000 Interest on Federal Funds Sold 34,000 115,000 - -------------------------------------------------------------------------- TOTAL INTEREST INCOME 16,850,000 15,924,000 - -------------------------------------------------------------------------- INTEREST EXPENSE: Interest on Deposits 5,568,000 5,198,000 Interest on Securities Sold under Repurchase Agreements and Other Short-Term Borrowings 553,000 450,000 Interest on Federal Home Loan Bank Advances 35,000 -0- - -------------------------------------------------------------------------- TOTAL INTEREST EXPENSE 6,156,000 5,648,000 - -------------------------------------------------------------------------- NET INTEREST INCOME 10,694,000 10,276,000 Provision for Loan Losses 250,000 300,000 - -------------------------------------------------------------------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 10,444,000 9,976,000 - -------------------------------------------------------------------------- OTHER INCOME: Trust Department Income 577,000 536,000 Fees and Service Charges 2,095,000 1,861,000 Gains From Sales of Loans and Securities -0- -0- Other Operating Income 20,000 51,000 - -------------------------------------------------------------------------- TOTAL OTHER INCOME 2,692,000 2,448,000 - -------------------------------------------------------------------------- OTHER EXPENSES: Salaries and Employee Benefits 4,137,000 4,010,000 Net Occupancy Expense of Premises 643,000 639,000 Furniture and Equipment Expenses 1,126,000 1,078,000 Supplies and Postage 470,000 468,000 Ohio Franchise Tax 252,000 290,000 Other Operating Expenses 1,762,000 1,816,000 - -------------------------------------------------------------------------- TOTAL OTHER EXPENSES 8,390,000 8,301,000 - -------------------------------------------------------------------------- INCOME BEFORE FEDERAL INCOME TAXES 4,746,000 4,123,000 - -------------------------------------------------------------------------- Federal Income Taxes 1,626,000 1,346,000 - -------------------------------------------------------------------------- NET INCOME $3,120,000 $2,777,000 - -------------------------------------------------------------------------- PER SHARE DATA: NET INCOME $ .74 $ .66 - -------------------------------------------------------------------------- DIVIDENDS DECLARED $ .32 $ .27 ========================================================================== The per share data has been adjusted to reflect the 2% stock dividend in 1997. Net income per share is based on weighted average common and common equivalent shares outstanding. 24 Backside Cover: 3 Column format Directors and Officers of LNB Bancorp, Inc. Directors Stanley G. Pijor Benjamin G. Norton Chairman of the Board Employee and Community LNB Bancorp, Inc. and Relations Manager Lorain National Bank RELTEC Corporation James L. Bardoner Jeffrey F. Riddell Retired, Former President President Dorn Industries, Inc. Consumers Builders Supply Co. Vice President and Daniel P. Batista Chief Executive Officer, Attorney/Partner Consumeracq, Inc. Cook & Batista Co., L.P.A. Thomas P. Ryan Robert M. Campana Executive Vice President Managing Director and Secretary/Treasurer P.C. Campana, Inc. LNB Bancorp, Inc. Executive Vice President Terry D. Goode and Secretary Vice President Lorain National Bank Lorain County Title Company T.L. Smith, M.D. Wellsley O. Gray Retired Physician Sales Consultant Smith Dairy Company Eugene M. Sofranko President and James F. Kidd Chief Executive Officer President and Lorain Glass Company, Inc. Chief Executive Officer LNB Bancorp, Inc. and Paul T. Stack Lorain National Bank Retired Manufacturer's Representative Coley's Inc. David M. Koethe Chairman of the Board Leo Weingarten The Lorain Printing Company Retired Directors Emeritus of Lorain National Bank James H. Riddell Don A. Sanborn Chairman of the Board Retired Consumers Builders Supply Co. President, Consumeracq, Inc. 25 Backside Cover: 3 Column format (Continued) Officers Stanley G. Pijor Chairman of the Board LNB Bancorp, Inc. and Lorain National Bank James F. Kidd President and Chief Executive Officer Thomas P. Ryan Executive Vice President and Secretary/Treasurer Sandra L. Dubell Senior Vice President and Chief Lending Officer Gregory D. Friedman Senior Vice President Chief Operating Officer and Chief Financial Officer Michael D. Ireland Senior Vice President Emma N. Mason Senior Vice President James H Weber Senior Vice President Mitchell J. Fallis Vice President and Chief Accounting Officer Front Cover: LNB BANCORP, INC. Quarterly Report Picture of five hands pulling down on a rope with a hoist. June 30, 1997 (lower middle of cover) 26 LNB Bancorp, Inc. Exhibit to Form 10 - Q (For the six months ended June 30, 1997) S - K Reference Number (27) Financial Data Schedule EX-27 2
9 0000737210 LNB BANCORP, INC. 1,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 24,240 325,245 235 0 14,346 94,229 94,561 311,568 4,238 456,989 384,483 25,661 3,255 0 4,222 0 0 39,368 456,989 13,585 3,231 34 16,850 5,568 6,156 10,694 0 0 8,390 4,746 4,746 0 0 3,120 .74 .74 5.19 376 293 0 1,624 4,116 226 98 4,238 3,102 0 1,136
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