-----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, K24EAzccy70xN7YEEbn4dtpwEjMiqDzEyCQlHLsryPTYZhkYz+T9vz8ktI0Hq+lU VhRqqwAdBbT2UViT75KU6A== 0000737210-01-500010.txt : 20010815 0000737210-01-500010.hdr.sgml : 20010815 ACCESSION NUMBER: 0000737210-01-500010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 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: 1710298 BUSINESS ADDRESS: STREET 1: 457 BROADWAY CITY: LORAIN STATE: OH ZIP: 44052-1769 BUSINESS PHONE: 4402446000 10-Q 1 lnb10q201.txt 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, 2001 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) (440) 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 July 31, 2001: 4,295,511 shares Class of Common Stock: $1.00 par value 2 LNB Bancorp, Inc. Quarterly Report on Form 10-Q Quarter Ended June 30, 2001 Part I - Financial Information Item 1 - Financial Statements Interim financial information required by Rule 10-01 of Regulation S-X is included in this Form 10-Q as referenced below: Page Number Condensed Consolidated Balance Sheets 3 Condensed Consolidated Statements of Income 5 Condensed Consolidated Statements of Cash Flows 9 Notes to the Condensed Consolidated Financial Statements 11 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 16 Item 3 - Quantitative and Qualitative Disclosures about Market Risk 23 Part II - Other Information Item 1 - Legal Proceedings 24 Item 2 - Changes in Securities 24 Item 3 - Defaults upon Senior Securities 24 Item 4 - Submission of Matters to a Vote of Security Holders 24 Item 5 - Other Information 24 Item 6 - Exhibits and Reports on Form 8-K 24 Signatures 25 Exhibit Index 26 3 FORM 10-Q LNB BANCORP, INC. PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS JUNE 30, DECEMBER 31, CONDENSED CONSOLIDATED BALANCE SHEETS 2001 2000 ------------- ------------- (Unaudited) ASSETS: Cash and due from banks $ 25,698,000 $ 22,011,000 Federal funds sold and short-term investments 3,098,000 3,125,000 Securities: Available for sale, at fair value 88,307,000 79,518,000 Held to maturity, at cost (fair value $36,217,000 and $43,982,000, respectively) 36,067,000 44,431,000 Federal Home Loan Bank and Federal Reserve Bank stock, at cost 3,256,000 3,152,000 -------------- ------------- Total Securities 127,630,000 127,101,000 ------------- ------------- Loans: Portfolio loans 450,661,000 442,132,000 Loans available for sale 9,122,000 9,008,000 ------------- ------------- Total Loans 459,783,000 451,140,000 Reserve for loan losses (5,195,000) (5,250,000) ------------- ------------- Net loans 454,588,000 445,890,000 ------------- ------------- Bank premises and equipment, net 10,862,000 11,251,000 Intangible assets 3,658,000 3,847,000 Accrued interest receivable 4,085,000 4,694,000 Other assets 5,228,000 4,093,000 Other foreclosed assets -0- 98,000 ------------- ------------- TOTAL ASSETS $634,847,000 $622,110,000 ============= ============= STATEMENT CONTINUED ON NEXT PAGE 4 STATEMENT CONTINUED FROM PREVIOUS PAGE LIABILITIES AND SHAREHOLDERS' EQUITY: Deposits: Demand and other noninterest-bearing deposits $ 83,296,000 $ 83,093,000 Savings and passbook accounts 230,855,000 219,618,000 Certificates of deposit 194,382,000 193,380,000 ------------- ------------- Total deposits 508,533,000 496,091,000 ------------- ------------- Securities sold under repurchase agreements and other short-term borrowings 32,187,000 39,391,000 Federal Home Loan Bank advances, short-term 23,035,000 16,095,000 Federal Home Loan Bank advances, long-term 6,310,000 8,250,000 Accrued interest payable 1,810,000 1,901,000 Accrued taxes, expenses, and other liabilities 3,585,000 3,857,000 ------------- ------------- Total Liabilities 575,460,000 565,585,000 ------------- ------------- Shareholders' equity: Preferred stock, no par value: Shares authorized 1,000,000, and shares outstanding, none Common stock $1.00 par: Shares authorized 15,000,000 Shares issued 4,395,487 and 4,313,047, respectively and Shares outstanding 4,295,487 and 4,211,047 respectively 4,313,000 4,313,000 Additional capital 24,339,000 24,336,000 Retained earnings 32,618,000 30,584,000 Accumulated other comprehensive income 1,017,000 192,000 Treasury stock at cost, 100,000 shares (2,900,000) (2,900,000) ------------- ------------- Total Shareholders' Equity 59,387,000 56,525,000 ------------- ------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $634,847,000 $622,110,000 ============= ============= See notes to unaudited condensed consolidated financial statements. 5 FORM 10-Q LNB BANCORP, INC. PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS SIX MONTHS ENDED CONDENSED CONSOLIDATED STATEMENTS JUNE 30, OF INCOME (UNAUDITED) ------------------------ 2001 2000 INTEREST INCOME ------------------------ Interest and fees on loans: Taxable $19,407,000 $18,651,000 Tax-exempt 5,000 10,000 Interest and dividends on securities: Taxable 3,529,000 3,590,000 Tax-exempt 180,000 124,000 Interest on Federal funds sold and short-term investments 88,000 85,000 ----------- ----------- TOTAL INTEREST INCOME 23,209,000 22,460,000 ----------- ----------- INTEREST EXPENSE: Interest on Certificates of Deposit of $100,000 and over 1,434,000 1,326,000 Interest on other deposits 6,606,000 6,096,000 Interest on securities sold under repurchase agreements and other short-term borrowings 636,000 832,000 Interest on Federal Home Loan Bank advances 659,000 679,000 ----------- ----------- TOTAL INTEREST EXPENSE 9,335,000 8,933,000 ----------- ----------- NET INTEREST INCOME 13,874,000 13,527,000 Provision for loan losses 900,000 600,000 NET INTEREST INCOME AFTER PROVISION ----------- ----------- FOR LOAN LOSSES 12,974,000 12,927,000 ----------- ----------- OTHER INCOME: Investment and Trust Services Division income 1,161,000 1,117,000 Service charges on deposit accounts 1,635,000 1,546,000 Other service charges, exchanges and fees 1,458,000 1,356,000 Gains on sales of investments 80,000 -0- Gains on sales of loans 17,000 3,000 Other operating income 75,000 23,000 ----------- ----------- TOTAL OTHER INCOME 4,426,000 4,045,000 STATEMENT CONTINUED ON NEXT PAGE 6 STATEMENT CONTINUED FROM PREVIOUS PAGE OTHER EXPENSES: Salaries and employee benefits 5,356,000 5,105,000 Net occupancy expense of premises 778,000 758,000 Furniture and equipment expense 1,045,000 1,289,000 Amortization of intangible assets 198,000 208,000 Supplies and postage 543,000 476,000 FDIC deposit insurance premium 47,000 47,000 Ohio franchise tax 324,000 330,000 Other operating expenses 2,857,000 2,527,000 ------------ ----------- TOTAL OTHER EXPENSES 11,148,000 10,740,000 ------------ ----------- INCOME BEFORE INCOME TAXES 6,252,000 6,232,000 INCOME TAXES 2,091,000 2,132,000 ------------ ----------- NET INCOME $ 4,161,000 $ 4,100,000 ============ =========== PER SHARE DATA: BASIC EARNINGS PER SHARE $ .97 $ .95 ====== ====== DILUTED EARNINGS PER SHARE $ .97 $ .95 ====== ====== DIVIDENDS DECLARED PER SHARE $ .50 $ .46 ====== ====== See notes to unaudited condensed consolidated financial statements. 7 FORM 10-Q LNB BANCORP, INC. PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS THREE MONTHS ENDED CONDENSED CONSOLIDATED STATEMENTS JUNE 30, OF INCOME (UNAUDITED) ------------------------ 2001 2000 INTEREST INCOME ----------------------- Interest and fees on loans: Taxable $ 9,574,000 $ 9,629,000 Tax-exempt 2,000 5,000 Interest and dividends on securities: Taxable 1,754,000 1,778,000 Tax-exempt 108,000 63,000 Interest on Federal funds sold and short-term investments 47,000 46,000 ----------- ----------- TOTAL INTEREST INCOME 11,485,000 11,521,000 ----------- ----------- INTEREST EXPENSE: Interest on Certificates of Deposit of $100,000 and over 656,000 714,000 Interest on other deposits 3,205,000 3,136,000 Interest on securities sold under repurchase agreements and other short-term borrowings 240,000 396,000 Interest on Federal Home Loan Bank advances 331,000 303,000 ----------- ----------- TOTAL INTEREST EXPENSE 4,432,000 4,549,000 ----------- ----------- NET INTEREST INCOME 7,053,000 6,972,000 Provision for loan losses 450,000 300,000 NET INTEREST INCOME AFTER PROVISION ----------- ----------- FOR LOAN LOSSES 6,603,000 6,672,000 ----------- ----------- OTHER INCOME: Investment and Trust Services Division income 603,000 615,000 Service charges on deposit accounts 836,000 784,000 Other services charges, exchanges and fees 863,000 701,000 Gains on sale of investments 57,000 -0- Gains on sale of loans 11,000 1,000 Other operating income 13,000 11,000 ----------- ----------- TOTAL OTHER INCOME 2,383,000 2,112,000 STATEMENT CONTINUED ON NEXT PAGE 8 STATEMENT CONTINUED FROM PREVIOUS PAGE OTHER EXPENSES: Salaries and employee benefits 2,756,000 2,613,000 Net occupancy expense of premises 392,000 372,000 Furniture and equipment expense 526,000 716,000 Supplies and postage 268,000 268,000 FDIC deposit insurance premium 23,000 23,000 Ohio franchise tax 162,000 161,000 Amortization of intangible assets 104,000 104,000 Other operating expenses 1,518,000 1,283,000 ------------ ------------ TOTAL OTHER EXPENSES 5,749,000 5,540,000 ------------ ------------ INCOME BEFORE INCOME TAXES 3,237,000 3,244,000 INCOME TAXES 1,082,000 1,124,000 ------------ ------------ NET INCOME $ 2,155,000 $ 2,120,000 ============ ============ PER SHARE DATA: BASIC EARNINGS PER SHARE $ .50 $ .49 ====== ====== DILUTED EARNINGS PER SHARE $ .50 $ .49 ====== ====== DIVIDENDS DECLARED PER SHARE $ .25 $ .23 ====== ====== See notes to unaudited condensed consolidated financial statements. 9 FORM 10-Q LNB BANCORP, INC. PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS SIX MONTHS ENDED CONDENSED CONSOLIDATED STATEMENTS JUNE 30, OF CASH FLOWS (UNAUDITED) ------------------------- 2001 2000 CASH FLOWS FROM OPERATING ACTIVITIES: ------------------------- Interest received $23,850,000 $22,365,000 Other income received 3,141,000 4,083,000 Interest paid (9,426,000) (8,843,000) Cash paid for salaries and employee benefits (5,909,000) (5,251,000) Net occupancy expense of premises paid (598,000) (598,000) Furniture and equipment expenses paid (326,000) (428,000) Cash paid for supplies and postage (543,000) (476,000) Cash paid for other operating expenses (2,485,000) (3,010,000) Federal income taxes paid (1,955,000) (2,101,000) ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 5,749,000 5,741,000 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities of securities available for sale 33,091,000 7,000,000 Proceeds from maturities of securities held to maturity 10,795,000 318,000 Purchases of securities held to maturity (607,000) (701,000) Purchases of securities available for sale (43,207,000) (8,858,000) Net (increase) in loans made to customers (9,715,000) (20,465,000) Purchases of bank premises, equipment and software (510,000) (1,042,000) Proceeds from sales of bank premises, and equipment (16,000) (18,000) Purchases of other foreclosed assets 247,000 247,000 Proceeds from liquidation of other foreclosed assets 296,000 96,000 ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES (10,120,000) (23,917,000) ----------- ----------- STATEMENT CONTINUED ON NEXT PAGE 10 STATEMENT CONTINUED FROM PREVIOUS PAGE CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in demand and other noninterest-bearing deposits 203,000 6,151,000 Net increase in savings and passbook deposits 11,237,000 10,805,000 Net increase in certificates of deposit 1,002,000 15,755,000 Net increase (decrease) in securities sold under repurchase agreements and other short-term borrowings 796,000 (9,744,000) Proceeds from Federal Home Loan Bank advances 5,000,000 -0- Payment on Federal Home Loan Bank advances (9,000,000) (10,000,000) Proceeds from exercise of stock options 3,000 19,000 Dividends paid (2,210,000) (2,023,000) ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES 8,031,000 10,963,000 ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,660,000 (7,213,000) CASH AND CASH EQUIVALENTS AT BEGINNING 25,136,000 37,343,000 OF YEAR ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $28,796,000 $30,130,000 =========== =========== RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: NET INCOME $ 4,161,000 $ 4,100,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 899,000 1,021,000 Amortization of intangible assets 188,000 199,000 Amortization of deferred loan fees and costs, net 117,000 135,000 Provision for loan losses 900,000 600,000 (Increase) decrease in accrued interest receivable 609,000 (81,000) (Increase) in other assets (807,000) (505,000) Increase (decrease) in accrued interest payable (91,000) 90,000 Increase (decrease) in accrued taxes, expenses and other liabilities 136,000 (31,000) Others, net (363,000) 213,000 ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES $ 5,749,000 $ 5,741,000 =========== =========== See notes to unaudited condensed consolidated financial statements. 11 FORM 10-Q LNB Bancorp, Inc. PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INTRODUCTION The following areas of discussion pertain to the unaudited condensed consolidated balance sheets of LNB Bancorp, Inc. (The Parent Company) and its wholly-owned subsidiaries, Lorain National Bank (The Bank) and Charleston Insurance Agency, Inc. and a 49% interest in Charleston Title Insurance Agency, LLC., at June 30, 2001, compared to December 31, 2000 and the results of its operations and cash flows for the three and six months ending June 30, 2001 compared to the same period in 2000. The term "the Corporation" refers to LNB Bancorp, Inc. and its wholly-owned subsidiaries. It is the intent of this discussion to provide the reader with a more thorough understanding of the unaudited condensed consolidated financial statements and should be read in conjunction with those unaudited 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, 2001, the unaudited condensed consolidated statements of income and the unaudited condensed consolidated statements of cash flows for the three and six months ended June 30, 2001 and 2000 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. The consolidated balance sheet at December 31, 2000 has been taken from the audited Financial Statements and condensed. It is suggested that these unaudited condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Corporation's December 31, 2000 Annual Report to Shareholders. 12 The results of operations for the period ended June 30, 2001 are not necessarily indicative of the operating results for the full year. RESERVE FOR LOAN LOSSES Because some loans may not be repaid in full, a reserve for 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 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 information. The reserve for loan losses is based on estimates using currently available information, and ultimately 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 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. 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 loan's 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 loan losses or by a provision for loan losses, depending upon the adequacy of the reserve for loan losses. RECLASSIFICATIONS Certain 2000 amounts have been reclassified to conform to 2001 presentation. 13 2. EARNINGS PER SHARE DATA Earnings per share is calculated as follows: For the 6 Months ended June 30, 2001 Income Shares Per-Share (Numerator) (Denominator) Amount -------------------------------------- Net Income $4,161,000 Basic EPS Income available to common shareholders $4,161,000 4,295,520 $ .97 ===== Effect of Dilutive Securities Incentive Stock Options -0- 4,120 ---------- --------- Diluted EPS Income available to common shareholders + assumed conversions $4,161,000 4,299,640 $ .97 ========== ========= ===== For the 6 Months ended June 30, 2000 Income Shares Per-Share (Numerator) (Denominator) Amount -------------------------------------- Net Income $4,100,000 Basic EPS Income available to common shareholders $4,100,000 4,294,389 $ .95 ===== Effect of Dilutive Securities Incentive Stock Options -0- 6,093 ---------- --------- Diluted EPS Income available to common shareholders + assumed conversions $4,100,000 4,300,482 $ .95 ========== ========= ===== 14 For the 3 Months ended June 30, 2001 Income Shares Per-Share (Numerator) (Denominator) Amount -------------------------------------- Net Income $2,155,000 Basic EPS Income available to common shareholders $2,155,000 4,305,568 $ .50 ===== Effect of Dilutive Securities Incentive Stock Options -0- 3,487 ---------- --------- Diluted EPS Income available to common shareholders + assumed conversions $2,155,000 4,309,055 $ .50 ========== ========= ===== For the 3 Months ended June 30, 2000 Income Shares Per-Share (Numerator) (Denominator) Amount -------------------------------------- Net Income $2,120,000 Basic EPS Income available to common shareholders $2,120,000 4,294,498 $ .49 ===== Effect of Dilutive Securities Incentive Stock Options -0- 4,326 ---------- --------- Diluted EPS Income available to common shareholders + assumed conversions $2,120,000 4,298,824 $ .49 ========== ========= ===== 15 3. COMPREHENSIVE INCOME The Corporation's comprehensive income for the six months ended June 30, 2001 and 2000 are as follows: For the six months ended June 30, 2001 2000 --------------------------------- Net income $4,161,000 $4,100,000 Other comprehensive income: Change in unrealized gain on securities available for sale, net of tax (credit) of $425,000 and $(54,000) 825,000 (105,000) ----------- ----------- Comprehensive Income $4,986,000 $3,995,000 The Corporation's comprehensive income for the three months ended June 30, 2001 and 2000 are as follows: For the three months ended June 30, 2001 2000 ----------------------------------- Net income $2,155,000 $2,120,000 Other comprehensive income: Change in unrealized gain on securities available for sale, net of tax (credit) of $34,000 and $(8,000) 65,000 (14,000) ----------- ------------ Comprehensive Income $2,220,000 $2,106,000 4. LNBB DIRECT - STOCK PURCHASE AND DIVIDEND REINVESTMENT PLAN Beginning June 1, 2001, LNB Bancorp, Inc. offered to its shareholders and customers the opportunity to participate in a direct stock purchase and dividend reinvestment plan. Prior to June 1, 2001, LNB Bancorp, Inc. shareholders were able to participate in a dividend reinvestment and cash stock purchase plan which was replaced by the direct stock purchase plan. The dividend reinvestment plan and the subsequent direct stock purchase plan enabled LNB Bancorp, Inc. to offer either newly issued or treasury common shares from LNB Bancorp, Inc., or shares acquired on the open market by the plan administrator. All shares acquired by plan participants under both plans in the first half were purchased by the plan administrator on the open market. LNB Bancorp, Inc. did not receive any proceeds from the sale of common shares under the plans. 16 PART I - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS Certain statements contained herein are not based on historical facts and are "forward-looking statements" within the meaning of Section 21A of the Securities Exchange Act of 1934. Forward-looking statements which are based on various assumptions (some of which are beyond the Corporation's control), may be identified by reference to a future period or periods, or by the use of forward-looking terminology, such as "may," "will," "believe," "expect," "estimate," anticipate," "continue," or similar terms or variations on those terms, or the negative of these terms. Actual results could differ materially from those set forth in forward-looking statements, due to a variety of factors, including, but not limited to, those related to the economic environment, particularly in the market areas in which the company operates, competitive products and pricing, fiscal and monetary policies of the U.S. Government, changes in government regulations affecting financial institutions, including regulatory fees and capital requirements, changes in prevailing interest rates, acquisitions and the integration of acquired businesses, credit risk management, asset/liability management, the financial and securities markets and the availability of and costs associated with sources of liquidity. The Corporation does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. FINANCIAL CONDITION Total assets of the Corporation increased $12,737,000 during the first half of 2001, to $634,847,000. This growth was funded by increases in demand deposits, market access accounts, certificates of deposit and repurchase agreements. Total earning assets increased 2.0% to $590,511,000 at June 30, 2001 from $581,366,000 at December 31, 2000. The ratio of earning assets to total assets decreased from 93.5% at December 31, 2000 to 93.0% at June 30, 2001. The loan to deposit ratio has decreased from 90.9% at 2000 year-end to 90.4% at June 30, 2001. Federal funds sold and other interest bearing investments decreased by $27,000 during the first six months of 2001. Total securities increased $529,000 ending the first half at $127,630,000. At June 30, 2001 gross unrealized gains and (losses) in the investment portfolio were approximately $1,694,000 and $(103,000), respectively. The decrease in the market value of the securities portfolio is due to market 17 interest rate fluctuations and not due to the deterioration of the credit worthiness of borrowers. Net loans increased $8,698,000 during the first half to $454,588,000 at June 30, 2001, for a 2% increase. Commercial loan growth was strong accounting for most of total loan growth. This loan increase was supported by a spring/summer home equity loan sale program. This home equity sale program resulted in new loans totaling over $5 million. The reserve for loan losses ended the quarter at $5,195,000 supported by a provision for loan losses of $900,000, recoveries of $68,000 and loan charge-offs of $1,023,000. The reserve for loan losses as a percentage of ending loans was 1.13% and 1.16% at December 31, 2000 and June 30, 2001, respectively. Corporate management believes that the reserve for loan losses at June 30, 2001 remains at an appropriate level. The ratio of the reserve for loan losses to nonperforming assets remained relatively constant at 257.2% as of June 30, 2001 compared to 258.9% at December 31, 2000. Also, Corporate management believes that the current level of the reserve for loan losses is adequate based upon quantitative analysis of identified risks and analysis of historical trends, and probable losses inherent in the loan portfolio at June 30, 2001. Nonperforming assets at June 30, 2001 totaled $2,020,000, up from $1,948,000 at March 31, 2001. The second quarter increase in nonperforming assets of $72,000 resulted from loans being brought current in the amount of $152,000, loans charged-off in the amount of $127,000, liquidations of nonaccrual loans of $161,000 and increases in nonaccrual loans of $717,000. The level of nonperforming assets decreased by $369,000 during the first quarter of 2001. This decrease is the result of a decrease in nonaccrual loans of $495,000 as well as by an increase in other foreclosed assets owned in the amount of $126,000. The decrease in nonaccrual loans is due to decreases in nonaccrual principal balances of $326,000 which have been paid off or brought current, loans charged-off in the amount of $283,000 and liquidations of nonaccrual loans of $109,000 and increases in nonaccrual principal balances of $403,000 which includes one large commercial loan credit of $147,000 and 26 small consumer loan credits. The decrease in nonaccrual loans in the first quarter of 2001 was due primarily to one commercial loan customer and 21 personal loan customers. The increase in Other Foreclosed Assets resulted from the acquisition of one residential property in the amount of $175,000. The level of nonperforming assets remains at relatively low levels and Corporate management believes nonperforming assets are well collateralized. 18 The table below presents the level of nonperforming assets at the end of the last four calendar quarters. Amounts in thousands 06/30/01 03/31/01 12/31/00 09/30/00 -------- -------- -------- -------- Nonperforming Assets: Nonaccrual $2,001 $1,724 $2,219 $1,702 Restructured 0 0 0 0 Other Foreclosed Assets 19 224 98 47 ------ ------ ------ ------ Total Nonperforming Assets $2,020 $1,948 $2,317 $1,749 ====== ====== ====== ====== Reserve for loan losses to total nonperforming assets 257.2% 258.9% 226.6% 296.4% ====== ====== ====== ====== Accruing loans past due 90 days $ 119 $ 112 $ 306 $ 197 ====== ====== ====== ====== Potential problem loans are those loans identified on management's watch list in which Management has some doubt as to the borrower's ability to comply with the present repayment terms and loans which Management is actively monitoring due to changes in the borrower's financial condition. At June 30, 2001, potential problem loans totaled $3,433,000, a decrease of $491,000 from the December 31, 2000 balance. The decrease in potential problem loans during 2001 is primarily due to decreases from the categories of consumer indirect automobile loans and mortgage loans. 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, 2001 there are no significant concentrations of credit in the loan portfolio. The Corporation had outstanding loan and credit commitments to make loans totaling $123,563,000 and $95,893,000 at June 30, 2001 and December 31, 2000, respectively. The increase in outstanding loan commitments results in part from an increase in the unused portion of home equity lines of credits from a home equity loan sale program in the second quarter of 2001. Mortgage and commercial construction loan demand increased in the second quarter of 2001 as seasonal weather conditions improved and the construction season began. Consumer loan demand increased in the second quarter as demand for home improvement and automobile loans increased. Total deposits increased $12,442,000 during the first half to $508,533,000. Noninterest-bearing deposits increased to $83,296,000, at June 30, 2001 for an increase of $203,000, while interest-bearing deposits climbed to $425,237,000 for an increase of $12,239,000. 19 Federal funds purchased and securities sold under agreements to repurchase increased $1,796,000 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 liquid position in order to take advantage of interest rate fluctuations. As of June 30, 2001, short-term security investments with maturities of one year or less totalled $7,591,000, which represented 6.0% of total securities. Adding cash and due from banks of $25,698,000, and Federal Funds sold and other interest bearing instruments of $3,098,000, total liquid assets represented 5.7% of total assets. The Corporation's subsidiary bank has established short-term lines of credit at correspondent banks, the Federal Home Loan Bank and the Federal Reserve Bank of Cleveland in the amounts of $18,000,000, $30,000,000 and $27,701,000, respectively, with credit available in the amounts of $6,000,000, $25,000,000 and $27,701,000, respectively. CAPITAL RESOURCES LNB Bancorp, Inc. continues to maintain a strong capital position. Total shareholders' equity increased to $59,387,000, at June 30, 2001. The increase resulted primarily from $4,161,000 of net income generated from the first half of operations less a cash dividend declared to shareholders of $2,126,000. The decrease in interest rates experienced in the first half of 2001 has caused an increase in the overall market value of available for sale securities which resulted in an increase in accumulated other comprehensive income of $825,000 for the six months ended June 30, 2001. As of June 30, 2001, the LNB Bancorp, Inc. held 100,000 shares of common stock as treasury stock. LNB Bancorp, Inc. purchased 2,004 of these shares in the first quarter of 1998 and 97,996 shares in 1997 for a total cost of $2,900,000. 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 along with the ratios required to be adequately capitalized have exceeded the 20 ratios for a well-capitalized financial institution for all periods presented above. The Corporation's capital and leverage ratios as of June 30, 2001 and 2000 follow together with those ratios required for the Corporation to be considered adequately capitalized. June 30, --------------------- 2001 2000 ------ ------ Tier I capital ratio 11.97% 11.75% Required Tier I capital ratio 4.00% 4.00% Total capital ratio 13.11% 12.80% Required total capital ratio 8.00% 8.00% Leverage ratio 8.77% 8.44% Required leverage ratio 3.00% 3.00% The Corporation regularly evaluates acquisition opportunities and conducts due diligence activities in connection with possible acquisition in markets near or within the Corporation's current geographic market. As a result, acquisition discussions and, in some cases, take place and future acquisitions could occur. Corporate management believes that its current capital resources are sufficient to support any foreseeable acquisition activity. RESULTS OF OPERATIONS Numerous factors restrained earnings growth during the first half of 2001. One major factor was the Federal Reserve Board's sixth consecutive interest rate cut, bringing the Fed Funds rate down a total of 2.75% since the start of this easing cycle. This, combined with the asset-sensitive position of the corporation's Balance Sheet, resulted in a lower interest rate spread between the amount paid to depositors and other lenders and the rate earned on our loans and other investments. Compounding these effects were declining stock market indices, which impeded non-interest income growth during the first half of 2001. The softening of the economy and its related impact on credit resulted in the recording of higher levels of loan loss provision in the first half of 2001, compared with the same period in 2000. Nevertheless, despite these persistent factors, LNB Bancorp, Inc., was still able to generate modest earnings growth versus last year. We accomplished this by working hard to lower our cost of doing business through overhead rationalization and streamlining our operations to optimize efficiency, as well as to lower our cost of funding - efforts that will remain an integral part of our overall strategy in the months ahead. Economic cycles, by their nature, include both peaks and valleys and we will continue to manage our business for the opportunities accompanying the inevitable return to a more favorable economic environment. The net interest margin for the six months ended June 30, 2001 decreased 12 basis points to 4.78% compared to 4.90% for the same period one year ago. 21 The net interest margin for the second quarter of 2001 was 4.87% compared to 5.00% for the second quarter of 2000. Interest and fees on loans for the first half of 2001 increased $751,000 when compared to the first half of 2000. Increased loan income resulted from the impact of increases in the average loan portfolio balance for the first half of 2001 increased by $26,400,000 to $453,512,000 as compared to the first half of 2000 offset by decreases in interest rates. Interest and dividends on securities was $3,709,000 for the first half of 2001 for a decrease of $5,000 over the same period in 2000. Decreased investment income resulted from the impact of increases in the average investment portfolio balance for the first half of 2001 by $2,274,000 to $126,951,000 as compared to the first half of 2001, offset by decreases in interest rates for 2001 compared with 2000. Interest and dividends on securities represented 16.0% of total interest income at June 30, 2001 compared to 16.6% at June 30, 2000. Interest on Federal funds sold and short-term investments was $88,000 and $85,000 at June 30, 2001 and June 30, 2000,respectively. Total interest expense increased by $402,000 when compared to the first half of 2000. The interest expense increase was fueled by increases in deposit account interest of $618,000 and offset by a decrease in interest expense from repurchase agreements and other short-term borrowings of $197,000. Also, total interest expense for the first half of 2001 was impacted by decreases in interest rates paid on savings accounts, market access accounts, certificate of deposit accounts and repurchase agreements when compared to the first half of 2000. Total other income increased by $381,000 when compared to the first half of 2000. This increase resulted from increases in income from Investment and Trust Services Division income of $44,000, increases in service charges of $89,000, increases in other service charges, and exchanges and fees of $102,000, increases in other income of $49,000 and gains on sales of investments and securities of $97,000. The Corporation continuously monitors noninterest expenses for greater profitability. The entire staff is geared to improving productivity at all levels. Noninterest expense for the six months ended June 30, 2001 was $11,148,000, 3.8% above the first six months of 2000. Noninterest expense for the six months ended June 30, 2000 was $10,740,000, 4.2% above the first six months of 1999. This increase was due primarily to increases in salaries and benefits, supplies and postage and increases in credit card and merchant expenses. The effective tax rate decreased slightly from 34.2% during the first half of 2000 to 33.5% during the first half of 2001. The decrease in the effective tax rate is due primarily to the increases in tax exempt interest income to total interest income. Net income was $4,161,000 and $4,100,000 for the six months ended June 30, 22 2001 and 2000, respectively. Net income per basic and diluted share was $.97 and $.95 for the six months ended June 30, 2001 and 2000, respectively, after giving effect for a two percent stock dividend paid on July 2, 2001. The annualized return on average assets for the 2001 first half was 1.34 percent compared with 2000's 1.39 percent. The annualized return on average shareholders' equity for the first half was 14.39 percent compared with 15.86 percent last year. IMPACTS OF ACCOUNTING AND REGULATORY PRONOUNCEMENTS On July 20, 2001, The Financial Accounting Standards Board issued Statements No. 141, "Accounting for Business Combinations" and No. 142, "Accounting For Goodwill and Other Intangible Assets." Statement 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. Poolings initiated prior to June 30, 2001 are grandfathered. Statement 142 replaces the requirement to amortize intangible assets with indefinite lives and goodwill with a requirement for an impairment test. Statement 142 also requires an evaluation of intangible assets and their useful lives and a transitional impairment test for goodwill and certain intangible assets. After transition, the impairment tests will be performed annually. A Company must adopt Statement 142 at the beginning of the fiscal year. LNB Bancorp, Inc. will adopt Statement 141 as of July 1, 2001 and Statement 142 as of January 1, 2002. Management is currently analyzing the effect Statement 142 will have on our financial statements. 23 PART I - OTHER INFORMATION ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market Risk Market risk is the risk of loss in a financial instrument arising from adverse changes in market indices such as interest rates, foreign exchange rates and equity prices. The Corporation's principal market risk exposure is interest rate risk, with no material impact on earnings from changes in foreign exchange rates or equity prices. There have been no material changes in the asset and liability mix of the Corporation since December 31, 2000, which would impact the Corporation's level of market risk. Interest rate risk is the exposure to changes in market interest rates. Interest rate sensitivity is the relationship between market interest rates and net interest income due to the repricing characteristics of assets and liabilities. The Corporation monitors the interest rate sensitivity of its on - and - off balance sheet positions by examining its near-term sensitivity and its longer term gap position. Corporate management has determined no significant changes in the Corporation's interest rate risk profile since December 31, 2000. With the Federal Reserve Board's recent announcements to decrease the rates by 275 basis points during the first half of 2001, the Corporation anticipates a modest decrease in the net interest margin during 2001. The amount of the decrease will be determined, in part, by any rate reductions resulting from actions of the Federal Open Market Committee. Also, Corporate management does not anticipate any significant changes in the Corporation's market risk of interest rate risk portfolio. 24 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. Exhibit (13) - Second Quarter Report to shareholders of LNB Bancorp, Inc., June 30, 2001. (b) Reports on Form 8-K There were no reports on Form 8-K filed for the three months ended June 30, 2001. 25 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 14, 2001 /s/ Gregory D. Friedman _________________________ Gregory D. Friedman, CPA Executive Vice President and Chief Financial Officer Date: August 14, 2001 /s/ Mitchell J. Fallis _________________________ Mitchell J. Fallis, CPA Vice President and Chief Accounting Officer 26 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 Footnote Earnings Per Share on pages 14-15 of this Form 10Q is incorporated by reference. (12) Second Quarter Report to Shareholders of LNB Bancorp, Inc. June 30, 2001 - EDGAR Version 27 LNB Bancorp, Inc. Exhibit to Form 10 - Q (For the six months ended June 30, 2001) S - K Reference Number (13) Second Quarter Report to Shareholders of LNB Bancorp, Inc. (dated June 30, 2001) EDGAR Version DESCRIPTION: Three sided pamphlet: Outside cover: white with blue stripe across the top with two pictures of LNB Employees with Ohio Reads Students Second Quarter Report June 30, 2001 (Logo) LNB Bancorp, Inc. and subsidiaries Inside contains: Message to shareholders, Unaudited EDGAR version Consolidated Balance Sheets for period ending June 30, 2001 and June 30, 2000, respectively, Unaudited EDGAR version Consolidated Statements of Income for the Six Months ended June 30, 2001 and June 30, 2000, respectively, LNBB Direct: A New Stock Purchase & Dividend Reinvestment Plan Directors of LNB Bancorp, Inc. and Lorain National Bank Officers of LNB Bancorp, Inc. Directors Emeriti of Lorain National Bank Directors and Officers of Charleston Insurance Agency, Inc. 28 Message to Shareholders It's a pleasure, once again, to report on the progress of LNB Bancorp, Inc., and its subsidiary companies after the first half of 2001. Earnings increased 2% for the first half of the year compared to the same period one year ago. Earnings for the first six months of 2001 reached $4,161,000, up from $4,100,000 during the first half of 2000. Second quarter's earnings for 2001 reached $2,155,000 compared with $2,120,000 for the second quarter of 2000. Numerous factors restrained earnings growth during the first half of 2001. One major factor was the Federal Reserve Board's sixth consecutive interest rate cut, bringing the Fed Funds rate down a total of 2.75% since the start of this easing cycle. This, combined with the asset-sensitive position of the corporation's Balance Sheet, resulted in a lower interest rate spread between the amount paid to depositors and other lenders and the rate earned on our loans and other investments. Compounding these effects were declining stock market indices, which impeded non-interest income growth during the first half of 2001. The softening of the economy and its related impact on credit resulted in the recording of higher levels of loan loss provision in the first half of 2001, compared with the same period in 2000. Nevertheless, despite these persistent factors, LNB Bancorp, Inc., was still able to generate modest earnings growth versus last year. We accomplished this by working hard to lower our cost of doing business through overhead rationalization and streamlining our operations to optimize efficiency, as well as to lower our cost of funding - efforts that will remain an integral part of our overall strategy in the months ahead. Economic cycles, by their nature, include both peaks and valleys and we will continue to manage our business for the opportunities accompanying the inevitable return to a more favorable economic environment. Basic and diluted earnings per share for the first half of 2001 reached $.97, a 2% increase from the $.95 amount reported for the first half of 2000. Earnings for the first half of 2001 were higher than a year ago because of slightly higher net interest income and non-interest income, offset in part by higher operating expenses and loan loss provision. The increase in net interest income for the first half of 2001 was supported by strong commercial loan growth. Cash dividends declared per share for the first half of 2001 increased 9% from the first half of 2000. The year-to-date cash dividends declared per share in 2001 increased by $.04 to $.50 per share, up from $.46 per share in 2000. In addition, we are pleased to announce a 2% stock dividend was paid to shareholders on July 2, 2001. The stock dividend increased the common stock 29 outstanding of LNB Bancorp, Inc. by 84,221 shares to 4,295,487 shares. Cash was issued in lieu of fractional shares. Per-share amounts for prior periods have been adjusted to reflect the 2% stock dividend. Consolidated assets increased 3% to $634.9 million as of June 30, 2001 up $20.7 million from June 30, 2000. Total deposits increased 4 percent to $508.5 million, up $19.0 million from one year ago. Total shareholders' equity increased by $6.4 million during the 12 months ended June 30, 2001, for a 12% increase. Lorain National Bank operates 22 retail branches and 28 ATMs in nine local communities. We appreciate and thank you for your continuing support and look forward to addressing you after the completion of our third quarter of operations. /s/ Stanley G. Pijor /s/ Gary C. Smith --------------------- ------------------ Stanley G. Pijor Gary C. Smith Chairman of the Board President and Chief Executive Officer NET INCOME Millions of Dollars (A Net Income graph follows in printed version with net income on the y- axis and years 1997 through 2001 on the x-axis. The graph is a vertical bar graph. The co-ordinates, by year, which are presented in the table below are plotted on the previously described grid.) DIVIDENDS PER SHARE Dollars* (A Dividends Per Share graph follows in printed version with dividends per share on the y-axis and years 1997 through 2001 on the x-axis. The graph is a vertical bar graph. The co-ordinates, by year, which are presented in the table below are plotted on the previously described grid.) BASIC EARNINGS PER SHARE Dollars* (A Basic Earnings Per Share graph follows in printed version with earnings per share on the y-axis and years 1997 through 2001 on the x-axis. The graph is a vertical bar graph. The co-ordinates, by year, which are presented in the table below are plotted on the previously described grid.) 30 Basic Earnings Net Income Dividends Per Share Per Share Year Millions of Dollars Dollars* Dollars* 2001 $4,161 $ .50 $0.97 2000 $4,100 $ .46 $0.95 1999 $3,796 $ .42 $0.88 1998 $3,432 $ .38 $0.79 1997 $3,120 $ .30 $0.72 *Adjusted for stock dividends and splits 31 Consolidated Balance Sheets June 30, 2001 2000 - ------------------------------------------------------------------------- ASSETS: Cash and Due From Banks. . . . . . . . . . . .$ 25,698,000 $ 27,094,000 Federal Funds Sold and Short-term Investments. 3,098,000 3,036,000 Federal Home Loan Bank and Federal Reserve Bank Stock, at Cost . . . . . . . . . 3,256,000 3,046,000 Securities Held to Maturity, at Cost . . . . . 36,067,000 44,785,000 Securities Available for Sale, at Fair Value . 88,307,000 77,412,000 Loans. . . . . . . . . . . . . . . . . . . . . 459,783,000 439,422,000 Reserve for Loan Losses . . . . . . . . . . . (5,195,000) (4,868,000) --------------------------- NET LOANS. . . . . . . . . . . . . . . . . . . 454,588,000 434,554,000 --------------------------- Premises, Equipment and Intangible Assets, (net) . . . . . . . . . . . . . . . . 14,520,000 15,320,000 Accrued Interest Receivable and Other Assets. . . . . . . . . . . . . . . . . 9,313,000 8,871,000 --------------------------- TOTAL ASSETS . . . . . . . . . . . . . . . . .$634,847,000 $614,118,000 --------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY: Noninterest-Bearing Deposits . . . . . . . . .$ 83,296,000 $ 86,805,000 Interest-Bearing Deposits. . . . . . . . . . . 425,237,000 402,737,000 --------------------------- TOTAL DEPOSITS . . . . . . . . . . . . . . . . 508,533,000 489,542,000 --------------------------- Securities Sold under Repurchase Agreements and Other Short-term Borrowings . . . . . . . 32,187,000 42,378,000 Federal Home Loan Bank Advances. . . . . . . . 29,345,000 24,345,000 Accrued Interest, Taxes, Expenses and Other Liabilities . . . . . . . . . . . . . . 5,395,000 4,842,000 --------------------------- TOTAL LIABILITIES. . . . . . . . . . . . . . . 575,460,000 561,107,000 --------------------------- Preferred Stock. . . . . . . . . . . . . . . . -0- -0- Common Stock . . . . . . . . . . . . . . . . . 4,313,000 4,228,000 Additional Capital . . . . . . . . . . . . . . 24,339,000 22,703,000 Retained Earnings. . . . . . . . . . . . . . . 32,618,000 30,155,000 Accumulated Other Comprehensive Income(Loss) . 1,017,000 (1,175,000) Treasury Stock, at Cost. . . . . . . . . . . . (2,900,000) (2,900,000) --------------------------- TOTAL SHAREHOLDERS' EQUITY . . . . . . . . . . 59,387,000 53,011,000 --------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . .$634,847,000 $614,118,000 --------------------------- 32 TOTAL ASSETS Millions of Dollars (A Total Assets graph follows in printed version with total assets on the y-axis and years 1997 through 2001 on the x-axis. The graph is a vertical bar graph. The co-ordinates, by year, which are presented in the table below are plotted on the previously described grid.) TOTAL DEPOSITS Millions of Dollars (A Total Deposits graph follows in printed version with total deposits on the y-axis and years 1997 through 2001 on the x-axis. The graph is a vertical bar graph. The co-ordinates, by year, which are presented in the table below are plotted on the previously described grid.) TOTAL SHAREHOLDERS' EQUITY Millions of Dollars (A Total Shareholder's Equity graph follows in printed version with total shareholder's equity on the y-axis and years 1997 through 2001 on the x-axis. The graph is a vertical bar graph. The co-ordinates, by year, which are presented in the table below are plotted on the previously described grid.) Total Shareholders' Total Assets Total Deposits Equity Year Millions of Dollars Millions of Dollars Millions of Dollars 2001 $634.9 $508.5 $59.4 2000 $614.1 $489.5 $53.0 1999 $590.5 $464.2 $49.6 1998 $508.4 $432.6 $46.7 1997 $457.0 $384.5 $43.6 33 Consolidated Statements of Income Six Months Ended June 30, 2001 2000 - ------------------------------------------------------------------------- INTEREST INCOME: Interest and Fees on Loans . . . . . . . . . . .$19,412,000 $18,661,000 Interest and Dividends on Securities:. . . . . . 3,709,000 3,670,000 Interest on Federal Funds Sold and Short-term Investments. . . . . . . . . . . . . 88,000 129,000 ------------------------- TOTAL INTEREST INCOME. . . . . . . . . . . . . . 23,209,000 22,460,000 ------------------------- INTEREST EXPENSE: Interest on Deposits . . . . . . . . . . . . . . 8,039,000 7,422,000 Interest on Securities Sold under Repurchase Agreements and Other Short-Term Borrowings . . 637,000 832,000 Interest on Federal Home Loan Bank Advances. . . 659,000 679,000 ------------------------- TOTAL INTEREST EXPENSE . . . . . . . . . . . . . 9,335,000 8,933,000 ------------------------- NET INTEREST INCOME. . . . . . . . . . . . . . . 13,874,000 13,527,000 ------------------------- Provision for Loan Losses. . . . . . . . . . . . 900,000 600,000 ------------------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES . . . . . . . . . . . . . . . . 12,974,000 12,927,000 ------------------------- OTHER INCOME: Investments and Trust Services Division Income . 1,161,000 1,117,000 Fees and Service Charges . . . . . . . . . . . . 3,092,000 2,902,000 Gains From Sales of Loans, Securities, and Fixed Assets. . . . . . . . . . 99,000 -0- Other Operating Income . . . . . . . . . . . . . 74,000 26,000 ------------------------- TOTAL OTHER INCOME . . . . . . . . . . . . . . . 4,426,000 4,045,000 ------------------------- OTHER EXPENSES: Salaries and Employee Benefits . . . . . . . . . 5,356,000 5,105,000 Net Occupancy Expense of Premises. . . . . . . . 778,000 758,000 Furniture and Equipment Expenses . . . . . . . . 1,045,000 1,289,000 Supplies and Postage . . . . . . . . . . . . . . 543,000 476,000 Ohio Franchise Tax . . . . . . . . . . . . . . . 324,000 330,000 Other Operating Expenses . . . . . . . . . . . . 3,102,000 2,782,000 ------------------------- TOTAL OTHER EXPENSES . . . . . . . . . . . . . . 11,148,000 10,740,000 ------------------------- 34 INCOME BEFORE INCOME TAXES . . . . . . . . . . . 6,252,000 6,232,000 ------------------------- Income Taxes . . . . . . . . . . . . . . . . . . 2,091,000 2,132,000 ------------------------- NET INCOME . . . . . . . . . . . . . . . . . . .$ 4,161,000 $ 4,100,000 ------------------------- PER SHARE DATA: BASIC EARNINGS PER SHARE $ .97 $ .95 ------------------------- DILUTED EARNINGS PER SAHRE $ .97 $ .95 ------------------------- DIVIDENDS DECLARED PER SHARE $ .50 $ .50 ------------------------- (LOGO) LNB Bancorp, Inc. and subsidiaries Logos NASDAQ Listing, FDIC, Federal Home Loan Bank, Equal Housing Lender 35 Picture of plan cover for LNBB Direct LNBB Direct: A New Stock Purchase & Dividend Reinvestment Plan Current and prospective LNB Bancorp, Inc. shareholders now have an easy and economical way to invest in our common shares ... LNBB Direct. LNBB Direct enables new shareholders to make an initial purchase of LNB Bancorp, Inc. common shares with no entrance fee, and existing shareholders and participants in its former dividend reinvestment plan to increase share ownership on a regular basis without paying brokerage commissions. Since the introduction of LNBB Direct during the second quarter, more than 70 new investors have joined our shareholder ranks. Overall, our former plan and LNBB Direct have been highly successful. More than 51 percent of our shareholders are now participating in dividend reinvestment, and during the past 12 months, about $1 million has been deposited to the plan, purchasing nearly 50,000 common shares. The number of shares participating in the plan, approximately 900,000, equates to roughly 20 percent of LNB Bancorp's shares outstanding. "We are confident that our company will be a flagship organization in our market for the future by providing extraordinary service to our customers and community, while helping our shareholders realize long-term value in their investment. LNBB Direct is yet another step in this direction," said Gary C. Smith, LNB Bancorp president and chief executive officer. LNBB Direct also provides shareholders the convenience of making automatic monthly purchases from their checking or savings account, to reinvest dividends, and to have the advantage of free safekeeping of their certificates. "The new plan improves upon our former dividend reinvestment plan in that, in addition to reinvesting all or a portion of dividends received into additional shares, it provides a convenient means for shareholders to regularly increase their holdings through an automated debit and investment feature. "Moreover, the plan allows new investors to make initial purchases of LNB Bancorp, Inc. common shares efficiently and without the need to engage a stockbroker," Smith said. Enrolling in LNBB Direct is easy. To learn more about the LNBB Direct Plan, investors simply need to request a plan prospectus from LNB Bancorp's Investor Relations Department at (800) 860-1007, ext. 7317. 36 LNB Bancorp, Inc. common shares are not deposits. They are not FDIC insured or bank guaranteed and are subject to investment risk, including possible loss of the amount invested. This is not an offer of securities. 37 Back Cover: White background with blue along top of page Five column format Directors of LNB Bancorp, Inc. and Lorain National Bank Stanley G. Pijor Benjamin G. Norton Chairman of the Board Human Resource LNB Bancorp, Inc. and Consultant Lorain National Bank LTI Power Systems James F. Kidd Jeffrey F. Riddell Vice Chairman of President and Chief the Board Executive Officer LNB Bancorp, Inc. and Consumeracq, Inc. and Lorain National Bank Consumers Builders Supply Co. Daniel P. Batista Attorney/Shareholder Thomas P. Ryan Wickens, Herzer, Panza, Executive Vice President Cook & Batista, L.P.A. and Secretary/Treasurer LNB Bancorp, Inc. Robert M. Campana Managing Director John W. Schaeffer, M.D. P.C. Campana, Inc. President North Ohio Heart Terry D. Goode Center, Inc. Vice President Lorain County Gary C. Smith Title Company President and Chief Executive Officer Wellsley O. Gray LNB Bancorp, Inc. and Retired Lorain National Bank James R. Herrick Eugene M. Sofranko President President and Chief Liberty Auto Executive Officer Group, Inc. Lorain Glass Company, Inc. Lee C. Howley President Leo Weingarten Howley and Company Retired David M. Koethe Retired, former Chairman of the Board The Lorain Printing Company 38 Officers of LNB Bancorp, Inc. Stanley G. Pijor Debra R. Brown Chairman of the Board Senior Vice President Branch Administration James F. Kidd Vice Chairman Sandra L. Dubell of the Board Senior Vice President and Senior Lending Gary C. Smith Officer President and Chief Executive Officer Michael D. Ireland Senior Vice President Thomas P. Ryan Senior Operations Officer Executive Vice President and Secretary/Treasurer Emma N. Mason Senior Vice President Gregory D. and Senior Trust Officer Friedman, CPA Executive Vice President James H. Weber and Chief Financial Senior Vice President Officer and Senior Marketing Officer Kevin W. Nelson Executive Vice President Mitchell J. Fallis, CPA and Chief Operating Vice President and Officer Chief Accounting Officer Directors Emeriti of Lorain National Bank: James L Bardoner T.L. Smith, M.D. Paul T. Stack Retired, Former Retired Physician Retired President Dorn Industries, Inc. 39 Directors and Officers of Charleston Insurance Agency, Inc. Directors Gary C. Smith James R. Herrick Chairman of the Board President Charleston Insurance Liberty Auto Group, Inc. Agency, Inc. Jeffrey F. Riddell Thomas P. Ryan President and Chief President and Chief Executive Officer Executive Officer Consumeracq, Inc. and Charleston Insurance Consumers Builders Agency, Inc. Supply Co. Stanley G. Pijor Chairman of the Board LNB Bancorp, Inc. and Lorain National Bank Officers Gary C. Smith Gregory D. Chairman of the Board Friedman, CPA Vice President and Thomas P. Ryan Treasurer President and Chief Executive Officer Kevin W. Nelson Secretary (Logo) LNB Bancorp, Inc. and subsidiaries Mail: LNB Bancorp, Inc.*457 Broadway*Lorain, Ohio 44052-1739 E-Mail: emailservices@4LNB.com*Internet:www.4LNB.com Telephone: (440) 244-6000*Toll Free: (800) 860-1007 Telefax: (440) 244-4815*Telebanker: (440) 245-4562 -----END PRIVACY-ENHANCED MESSAGE-----