-----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, RAQKSF5qQAHMu1cojNSmGWShTK0BBLGRe/nAcpanjSW5FTd9ietXTt0QJKCQ1Flr TFRcUlx3bRmyMYw1hGQSTA== 0000737210-01-500012.txt : 20020410 0000737210-01-500012.hdr.sgml : 20020410 ACCESSION NUMBER: 0000737210-01-500012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 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: 1788948 BUSINESS ADDRESS: STREET 1: 457 BROADWAY CITY: LORAIN STATE: OH ZIP: 44052-1769 BUSINESS PHONE: 4402446000 10-Q 1 lnb10q301.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 September 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 October 25, 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 September 30, 2001 Part I - Financial Information Item 1 - Financial Statements Interim financial information required by Regulation 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 5 Condensed Consolidated Statements 9 of Cash Flows Notes to the Condensed Consolidated Financial Statements 11 Item 2 - Management's Discussion and Analysis 17 of Financial Condition and Results of Operations Item 3 - Quantitative and Qualitative Disclosures 24 About Market Risk Part II - Other Information Item 1 - Legal Proceedings 25 Item 2 - Changes in Securities 25 Item 3 - Defaults upon Senior Securities 25 Item 4 - Submission of matters to a Vote of 25 Security Holders Item 5 - Other Information 25 Item 6 - Exhibits and Reports on Form 8-K 25 Signatures 26 Exhibit Index 27 3 FORM 10-Q LNB BANCORP, INC. PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS SEPTEMBER 30, DECEMBER 31, CONDENSED CONSOLIDATED BALANCE SHEETS 2001 2000 ------------- ------------- (Unaudited) ASSETS: Cash and due from banks $ 25,524,000 $ 22,011,000 Federal funds sold and short-term Investments 3,119,000 3,125,000 Securities: Available for sale, at fair value 109,889,000 79,518,000 Held to maturity, at cost (fair value $18,331,000 and $41,819,000, respectively) 17,908,000 44,431,000 Federal Home Loan Bank and Federal Reserve Bank Stock, at cost 3,537,000 3,152,000 ------------- ------------- Total Securities 131,334,000 127,101,000 ------------- ------------- Loans: Portfolio loans 461,566,000 442,132,000 Loans available for sale 9,191,000 9,008,000 ------------- ------------- Total loans 470,757,000 451,140,000 Reserve for loan losses (5,412,000) (5,250,000) ------------- ------------- Net loans 465,345,000 445,883,000 ------------- ------------- Bank premises and equipment, net 10,582,000 11,251,000 Intangible assets 3,565,000 3,847,000 Accrued interest receivable 3,392,000 4,694,000 Other assets 4,750,000 4,093,000 Other foreclosed assets -0- 98,000 ------------- ------------- TOTAL ASSETS $647,611,000 $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 $ 83,711,000 $ 83,093,000 Savings and passbook accounts 240,801,000 219,618,000 Certificates of deposit 194,687,000 193,380,000 ------------- ------------- Total deposits 519,199,000 496,091,000 ------------- ------------- Securities sold under repurchase agreements and other short-term borrowings 31,215,000 39,391,000 Federal Home Loan Bank advances, short-term 21,535,000 16,095,000 Federal Home Loan Bank advances, long-term 8,810,000 8,250,000 Accrued interest payable 1,511,000 1,901,000 Accrued taxes, expenses and other liabilities 4,012,000 3,857,000 ------------- ------------- Total Liabilities 586,282,000 565,585,000 ------------- ------------- 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 4,395,511 and 4,311,704, respectively and Shares outstanding 4,295,511 and 4,211,704, respectively 4,397,000 4,313,000 Additional capital 25,915,000 24,336,000 Retained earnings 32,078,000 30,584,000 Accumulated other comprehensive income 1,839,000 192,000 Treasury Stock at cost, 100,000 shares (2,900,000) (2,900,000) ------------- ------------- Total Shareholders' Equity 61,329,000 56,525,000 ------------- ------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $647,611,000 $622,110,000 ============= ============= See notes to unaudited condensed consolidated financial statements. 5 FORM 10-Q LNB BANCORP, INC. PART 1 - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS NINE MONTHS ENDED CONDENSED CONSOLIDATED STATEMENTS SEPTEMBER 30, OF INCOME (UNAUDITED) ------------------------- 2001 2000 INTEREST INCOME: ------------ ------------ Interest and fees on loans: Taxable $28,619,000 $28,737,000 Tax-exempt 5,000 14,000 Interest and dividends on securities: U.S. Government agencies and corporations 4,467,000 4,827,000 U.S. Treasury securities 74,000 340,000 U.S. Government CMO's 387,000 -0- States and political subdivisions 312,000 187,000 Other debt and equity securities 300,000 176,000 Interest on Federal funds sold and other interest-bearing instruments 126,000 171,000 ------------ ------------ TOTAL INTEREST INCOME 34,290,000 34,452,000 ------------ ------------ INTEREST EXPENSE: Interest on Deposits: Time certificates of $100,000 and over 1,986,000 2,206,000 Other deposits 9,636,000 9,423,000 Interest on securities sold under repurchase agreements and other short-term borrowings 942,000 1,355,000 Interest on Federal Home Loan Bank advances 965,000 987,000 ------------ ------------ TOTAL INTEREST EXPENSE 13,529,000 13,971,000 ------------ ------------ NET INTEREST INCOME 20,761,000 20,481,000 Provision for loan losses 1,350,000 1,250,000 ------------ ------------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 19,411,000 19,231,000 ------------ ------------ OTHER INCOME: Investment and Trust Services Division income 1,723,000 1,704,000 Service charges on deposit accounts 2,558,000 2,353,000 Other service charges, exchanges and fees 2,297,000 2,072,000 Gain on sale of securities 250,000 -0- Gain on sale of loans 35,000 -0- Other operating income 100,000 40,000 ------------ ------------ TOTAL OTHER INCOME 6,963,000 6,169,000 STATEMENT CONTINUED ON NEXT PAGE 6 STATEMENT CONTINUED FROM PREVIOUS PAGE OTHER EXPENSES: Salaries and employee benefits 8,144,000 7,754,000 Furniture and equipment expenses 1,573,000 1,697,000 Net occupancy expense of premises 1,143,000 1,108,000 Supplies and postage 775,000 705,000 Ohio franchise tax 486,000 418,000 Credit card and merchant expenses 943,000 821,000 Other operating expenses 3,721,000 3,374,000 ------------ ------------ TOTAL OTHER EXPENSES 16,785,000 15,877,000 ------------ ------------ INCOME BEFORE INCOME TAXES 9,589,000 9,523,000 INCOME TAXES 3,235,000 3,262,000 ------------ ------------ NET INCOME $ 6,354,000 $ 6,261,000 ============ ============ PER SHARE DATA: BASIC EARNINGS PER SHARE $ 1.48 $ 1.45 ====== ====== DILUTED EARNINGS PER SHARE $ 1.48 $ 1.45 ====== ====== DIVIDENDS DECLARED PER SHARE $ .74 $ .72 ====== ====== 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 SEPTEMBER 30, OF INCOME (UNAUDITED) -------------------------- 2001 2000 INTEREST INCOME ------------ ------------ Interest and fees on loans: Taxable $ 9,212,000 $10,086,000 Tax-Exempt -0- 4,000 Interest and dividends on securities: U.S. Government agencies and corporations 1,255,000 1,650,000 U.S. Treasury securities 17,000 80,000 U.S. Government CMO's 311,000 -0- States and political subdivisions 132,000 63,000 Other debt and equity securities 116,000 67,000 Interest on Federal funds sold and other interest-bearing instruments 38,000 42,000 ------------ ------------ TOTAL INTEREST INCOME 11,081,000 11,992,000 ------------ ------------ INTEREST EXPENSE: Interest on Deposits: Time certificates of $100,000 and over 552,000 880,000 Other deposits 3,030,000 3,327,000 Interest on securities sold under repurchase agreements and other short-term borrowings 306,000 523,000 Interest on Federal Home Loan Bank advances 306,000 308,000 ------------ ------------ TOTAL INTEREST EXPENSE 4,194,000 5,038,000 ------------ ------------ NET INTEREST INCOME 6,887,000 6,954,000 Provision for loan losses 450,000 650,000 NET INTEREST INCOME AFTER PROVISION ------------ ------------ FOR LOAN LOSSES 6,437,000 6,304,000 ------------ ------------ OTHER INCOME: Investment and Trust Services Division income 562,000 587,000 Service charges on deposit accounts 923,000 807,000 Other service charges, exchanges and fees 839,000 716,000 Gain on sale of securities 170,000 -0- Gain on sale of loans 18,000 -0- Other operating income 25,000 14,000 ------------ ------------ TOTAL OTHER INCOME 2,537,000 2,124,000 STATEMENT CONTINUED ON NEXT PAGE 8 STATEMENT CONTINUED FROM PREVIOUS PAGE OTHER EXPENSES: Salaries and employee benefits 2,788,000 2,649,000 Furniture and equipment expenses 528,000 408,000 Net occupancy expense of premises 365,000 350,000 Supplies and postage 232,000 229,000 Ohio franchise tax 162,000 88,000 Credit card and merchant expenses 346,000 288,000 Other operating expenses 1,216,000 1,125,000 ------------ ------------ TOTAL OTHER EXPENSES 5,637,000 5,137,000 ------------ ------------ INCOME BEFORE INCOME TAXES 3,337,000 3,291,000 INCOME TAXES 1,144,000 1,130,000 ------------ ------------ NET INCOME $ 2,193,000 $ 2,161,000 ============ ============ PER SHARE DATA: BASIC EARNINGS PER SHARE $ .51 $ .50 ====== ====== DILUTED EARNINGS PER SHARE $ .51 $ .50 ====== ====== DIVIDENDS DECLARED PER SHARE $ .25 $ .25 ====== ====== See notes to unaudited condensed consolidated financial statements. 9 FORM 10-Q LNB BANCORP, INC. PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS NINE MONTHS ENDED CONDENSED CONSOLIDATED STATEMENTS SEPTEMBER 30, OF CASH FLOWS (UNAUDITED) ------------------------- 2001 2000 CASH FLOWS FROM OPERATING ACTIVITIES: ------------ ------------ Interest received $35,351,000 $34,516,000 Other income received 6,526,000 6,218,000 Interest paid (13,919,000) (13,759,000) Cash paid for salaries and employee benefits (8,637,000) (7,557,000) Net occupancy expense of premises paid (888,000) (865,000) Furniture and equipment expenses paid (540,000) (654,000) Cash paid for supplies and postage (775,000) (705,000) Cash paid for other operating expenses (3,974,000) (4,154,000) Federal income taxes paid (3,135,000) (3,227,000) ------------ ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 10,009,000 9,813,000 ------------ ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities of securities available for sale 44,990,000 8,000,000 Proceeds from maturities of securities held to maturity 28,854,000 502,000 Purchase of securities held to maturity (938,000) (753,000) Purchase of securities available for sale (75,616,000) (11,126,000) Net (increase) in loans made to customers (20,907,000) (31,442,000) Proceeds from sales of bank premises and equipment 13,000 -0- Purchases of bank premises, equipment and software, net (668,000) (1,308,000) Proceeds from liquidation of other foreclosed assets 98,000 296,000 Purchases of other foreclosed assets -0- (247,000) ------------ ----------- NET CASH USED IN INVESTING ACTIVITIES (24,174,000) (36,078,000) ------------ ----------- STATEMENT CONTINUED ON NEXT PAGE 10 STATEMENT CONTINUED FROM PREVIOUS PAGE CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in demand and other noninterest-bearing deposits 618,000 3,772,000 Net increase in savings and passbook deposits 21,183,000 12,409,000 Net increase in certificates of deposit 1,307,000 27,308,000 Net increase(decrease) in securities sold Under repurchase agreements and other short-term borrowings 824,000 (18,582,000) Proceeds from Federal Home Loan Bank advances 11,000,000 8,000,000 Payment on Federal Home Loan advances (14,000,000) (10,000,000) Purchase of Treasury Stock -0- (39,000) Proceeds from exercise of stock options 3,000 62,000 Dividends paid (3,263,000) (3,034,000) NET CASH PROVIDED BY FINANCING ------------ ----------- ACTIVITIES 17,672,000 19,896,000 ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,507,000 (6,369,000) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 25,136,000 37,343,000 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF QUARTER $28,643,000 $30,974,000 ============ ============ RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: NET INCOME $6,354,000 $6,261,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,288,000 1,286,000 Amortization of intangible assets 283,000 298,000 Amortization of deferred loan fees and costs, net 102,000 248,000 Provision for loan losses 1,350,000 1,250,000 Decrease in accrued interest receivable 1,302,000 123,000 (Increase) in other assets (545,000) (213,000) Increase (Decrease) in accrued interest payable (390,000) 212,000 Increase in accrued taxes, expenses and other liabilities 100,000 43,000 Other, net 165,000 305,000 ------------ ------------ NET CASH PROVIDED BY OPERATING ACTIVITIES $10,009,000 $ 9,813,000 ============ ============ 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 Agency, LLC., at September 30, 2001, compared to December 31, 2000, and the results of its operations and cash flows for the three and nine months ended September 30, 2001 compared to the same periods in 2000. The term "the Corporation" refers to LNB Bancorp, Inc. and its subsidiaries. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of LNB Bancorp, Inc. have been prepared in accordance with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. However, such information reflects all adjustments (consisting of normal recurring adjustments), which are, in the opinion of LNB Bancorp, Inc. management, necessary for fair statement of results for the interim periods. 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. The results of operations for the period ended September 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 12 maintained by Management at a level considered adequate to cover loan losses inherent in the loan portfolio 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 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 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 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 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 the 2001 presentation. 13 2. EARNINGS PER SHARE Earnings per share is calculated as follows: For the 9 Months ended September 30, 2001 Income Shares Per-Share (Numerator) (Denominator) Amount Net Income $6,354,000 Basic EPS Income available to common shareholders $6,354,000 4,295,378 $1.48 Effect of Dilutive Securities Incentive Stock Options -0- 4,078 -0- ---------- --------- ----- Diluted EPS Income available to common shareholders + assumed conversions $6,354,000 4,299,456 $1.48 ========== ========= ===== For the 9 Months ended September 30, 2000 Income Shares Per-Share (Numerator) (Denominator) Amount Net Income $6,261,000 Basic EPS Income available to common shareholders $6,261,000 4,294,587 $1.45 Effect of Dilutive Securities Incentive Stock Options -0- 4,039 -0- ---------- --------- ----- Diluted EPS Income available to common shareholders + assumed conversions $6,261,000 4,298,626 $1.45 ========== ========= ===== 14 For the 3 Months ended September 30, 2001 Income Shares Per-Share (Numerator) (Denominator) Amount Net Income $2,193,000 Basic EPS Income available to common shareholders $2,193,000 4,295,491 $ .51 Effect of Dilutive Securities Incentive Stock Options -0- 3,971 -0- ---------- --------- ----- Diluted EPS Income available to common shareholders + assumed conversions $2,193,000 4,299,462 $ .51 ========== ========= ===== For the 3 Months ended September 30, 2000 Income Shares Per-Share (Numerator) (Denominator) Amount Net Income $2,161,000 Basic EPS Income available to common shareholders $2,161,000 4,294,977 $ .50 Effect of Dilutive Securities Incentive Stock Options -0- 2,878 -0- ---------- --------- ----- Diluted EPS Income available to common shareholders + assumed conversions $2,161,000 4,297,855 $ .50 ========== ========= ===== 15 3. COMPREHENSIVE INCOME The Corporation's comprehensive income for the nine months ended September 30, 2001 and 2000 are as follows: For the nine months ended September 30, 2001 2000 -------------------------------- Net income $6,354,000 $6,261,000 Other comprehensive income: Unrealized gain on securities available for sale, net of tax 1,647,000 361,000 ----------- ----------- Comprehensive Income $8,001,000 $6,622,000 =========== =========== Disclosure of Reclassification Amount Unrealized holding gains arising during the period, net of tax $1,812,000 $ -0- Less reclassification adjustment for gains included in net income, net of tax of $85,000 and $-0- 165,000 -0- ----------- ------------ Change in unrealized gain on securities available for sale, net of tax $1,647,000 $ -0- =========== ============ The Corporation's comprehensive income for the three months ended September 30, 2001 and 2000 are as follows: For the three months ended September 30 2001 2000 ------------------------------------ Net income $2,193,000 $2,161,000 Other comprehensive income: Unrealized gain on securities available for sale, net of tax 822,000 520,000 ----------- ----------- Comprehensive Income $3,015,000 $2,681,000 =========== =========== 16 Disclosure of Reclassification Amount Unrealized holding gains arising during the period, net of tax $ 934,000 $ -0- Less reclassification adjustment for gains included in net income, net of tax of $58,000 and $-0- 112,000 -0- ----------- ------------ Change in unrealized gain on securities available for sale, net of tax $ 822,000 $ -0- =========== ============ 17 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 of 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 $25,501,000 during the first nine months of 2001, to $647,611,000. This growth was funded by increases in CheckInvest and Market Access deposit accounts and offset in part by declines in demand deposits, savings and certificates of deposit. Total earning assets increased 4.1% to $605,210,000 at September 30, 2001 from December 31, 2000. The ratio of earning assets to total assets remained at 93.54% at December 31, 2000 and September 30, 2001. The loan to deposit ratio has decreased from 90.94% at 2000 year-end to 90.67% at September 30, 2001. Federal funds sold and short-term investments decreased by $6,000 during the first nine months of 2001. Total securities increased $4,233,000 ending the third quarter at $131,334,000. At September 30, 2001 gross unrealized gains and (losses) in the investment securities portfolio were approximately $3,123,000 and 18 ($74,000), respectively. The increase in the market value of the securities portfolio is due to decreases in market interest rates during 2001. Net loans grew by $19,455,000 during the first nine months to $470,757,000 at September 30, 2001 for a 4.4% growth rate. Commercial loan growth was strong accounting for almost all of the total loan growth during the nine months ended September 30, 2001. Loan increase was supported by spring and summer home equity loan sale programs which resulted in new loans totaling over $6 million. The reserve for loan losses ended the quarter at $5,412,000. Activity for the nine months ended September 30, 2001 included provision for loan losses of $1,350,000, recoveries of $128,000 and loan charge-offs of $1,316,000. The reserve for loan losses as a percentage of ending loans decreased .01% from 1.16% at December 31, 2000 to 1.15% at September 30, 2001. Corporate management believes that the reserve for loan losses as a percentage of loans at September 30, 2001 remains at an appropriate level. The ratio of the reserve for loan losses to nonperforming assets remained at an adequate level even though decreasing to 214.9% at September 30, 2001, from 226.6% at December 30, 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 September 30, 2001. The level of nonperforming assets increased by $201,000 during the first nine months of 2001. This increase is the result of an increase in non-accrual loans of $299,000 offset by a decrease in other foreclosed assets in the amount of $98,000. The decrease in other foreclosed assets results from the liquidation of assets. The increase in nonaccrual loans is due to decreases in nonaccrual principal balances of $583,000 which have been paid off and brought current, loans charged-off in the amount of $354,000, liquidation of non-accrual loans of $369,000 and increases in nonaccrual principal balances of $1,605,000. The increase in nonaccrual loans in the first nine months of 2001 was due primarily to ten commercial loan customers, three mortgage loan customers and several personal loans, particularly in the indirect automobile loan category. Management does not believe that this increase in non-accrual loans is indicative of a failing local economy and that this change did not result from any change in underwriting standards. Nonperforming assets at September 30, 2001 totaled $2,518,000, up from $2,020,000 at June 30, 2001. The third quarter increase in nonperforming assets of $498,000 resulted from loans being paid off or brought current in the amount of $257,000, loans charged-off in the amount of $71,000, liquidation of non-accrual loans of $260,000, decreases in other foreclosed assets of $19,000 and increases in nonaccrual loans of $1,105,000. The increase in nonaccrual loans in the third quarter of 2001 was due primarily to seven commercial loan customers and seventeen consumer loan customers. 19 The level of nonperforming assets at September 30, 2001 remains 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 09/30/01 06/30/01 03/31/01 12/31/00 -------- -------- -------- -------- Nonperforming Assets: Nonaccrual $2,518 $2,001 $1,724 $2,219 Restructured 0 0 0 0 Other Foreclosed Assets 0 19 224 98 -------- -------- -------- -------- Total Nonperforming Assets $2,518 $2,020 $1,948 $2,317 ======== ======== ======== ======== Reserve for loan losses to total nonperforming assets 214.9% 257.2% 258.9% 226.6% ======== ======== ======== ======== Accruing loans past due 90 days $ 66 $ 119 $ 112 $ 306 ======== ======== ======== ======== 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 September 30, 2001, potential problem loans totaled $2,695,000, a decrease of $1,229,000 from the December 31, 2000 balance of $3,924,000. The Corporation's credit policies are reviewed and modified on an on-going basis in order to remain suitable for the management of credit risk within the loan portfolio as conditions change. At September 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 $126,229,000 and $95,893,000 at September 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 and third quarters of 2001. Mortgage and commercial construction loan demand increased in the second and third quarters of 2001 as seasonal weather conditions improved and the construction season moved forward. Consumer loan demand leveled off in the first, second and third quarters of 2001. Total deposits increased $23,108,000 during the first nine months to $519,199,000. Noninterest-bearing deposits increased to $83,711,000, at September 30, 2001 for an increase of $618,000, while interest-bearing deposits climbed to $435,488,000 for an increase of $22,490,000. Federal funds purchased and securities sold under agreements to repurchase decreased $8,176,000 during the first nine months of 2001 due to decreases in federal 20 funds purchased balances. Due to the volatility of customer repurchase agreements, most funds generated by repurchase activity enter the Corporation's earning assets as short-term investments. Federal Home Loan Bank (FHLB) advances increased to $30,345,000 at September 30, 2001, up $6,000,000 from 2000 year end. 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 September 30, 2001, short-term security investments with maturities of one year or less totaled $49,431,000 which represented 37.6% of total securities. Adding cash and due from banks of $25,524,000 and Federal funds sold and short-term investments of $3,119,000, total liquid assets represented 12.1% 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 $40,000,000, $28,361,000 and $18,000,000, respectively, with credit available in the amounts of $32,000,000, $28,361,000 and $18,000,000, respectively. CAPITAL RESOURCES LNB Bancorp, Inc. continues to maintain a strong capital position. Total shareholders' equity reached an all time high of $61,329,000, at September 30, 2001, an increase of $4,804,000, or 8.5% from December 31, 2000. The increase resulted primarily from $6,354,000 of net income generated from the first nine months of operations less a cash dividend payable to shareholders of $3,179,000. The decrease in interest rates experienced in the first three quarters of 2001 has caused an increase in the market value of available for sale securities which resulted in an increase in shareholders' equity within accumulated other comprehensive income of $1,647,000 for the nine months ended September 30, 2001. As of September 30, 2001, the LNB Bancorp, Inc. held 100,000 shares of common stock as treasury stock. LNB Bancorp, Inc. purchased 97,996 of these shares in 1997 and 2,004 shares in 1998 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 21 have exceeded the ratios for a well-capitalized financial institution for all periods presented. The Corporation's capital and leverage ratios as of September 30, 2001 and 2000 follow together with those ratios required for the Corporation to be considered adequately capitalized . September 30 Minimum Required Minimum ----------------- To Be Well Required 2001 2000 Capitalized Capital ------ ------ ---------------- ---------- Total capital ratio 12.99% 12.98% 10.00% 8.00% Tier I capital ratio 11.84% 11.79% 6.00% 4.00% Leverage ratio 8.75% 8.57% 5.00% 4.00% The Corporation regularly evaluates acquisition opportunities and conducts due diligence activities in connection with possible acquisitions in markets near or within the Corporation's current geographic market. As a result, acquisition discussions and, in some cases negotiations, take place and future acquisitions could occur. Corporate management believes that it's current capital resources are sufficient to support any foreseeable acquisition activity. RESULTS OF OPERATIONS Interest and fees on loans was $28,624,000 for the first nine months of 2001 for a decrease of $127,000 when compared to the first nine months of 2000. Decreased loan income resulted from the net of increases in the loan portfolio of $19,617,000 and decreases in interest rates. Interest and dividends on securities was $5,540,000 for the first nine months of 2001 for an increase of $10,000 over the same period in 2000. Increased security income results from increases in the volume of securities and from decreases in yields on those securities. Interest and dividends on securities represented 16.2% of total interest income at September 30, 2001 compared to 16.1% at September 30, 2000. Interest on Federal funds sold and short-term investments was $126,000 at September 30, 2001 compared to $171,000 at September 30, 2000. The decrease resulted from decreases in the average balances invested in these forms of financial instruments plus decreases in interest rates. Total interest expense decreased by $442,000 when compared to the first nine months of 2000. The interest expense decrease resulted from a decrease in interest expense on deposits of $7,000 and repurchase agreement interest of $413,000, and by decreases in Federal Home Loan Bank advances of $22,000. Also, total interest expense for the first nine months of 2001 was impacted by a net increase in deposits of $23,108,000, and by decreases in interest rates paid on savings, Market Access and certificate of deposit accounts when compared to the first nine months of 2000. 22 Total other income increased by $794,000 when compared to the first nine months of 2000. This increase resulted from increases in income from investment and trust services fees of $19,000, increases in service charges of $205,000 and increases in other charges, exchanges and fees of $225,000. The increase in service charges is due, in part, to reevaluating the assessment of transaction account charges plus increases in the volume of accounts. The Corporation reported gains on sale of investments and loans of $285,000. Other operating income increased by $60,000. The Corporation continuously monitors noninterest expenses for greater profitability. The entire staff is geared to improving productivity at all levels. Noninterest expense for the nine months ended September 30, 2001 was $16,785,000, 5.7% above the first nine months of 2000. This increase was due primarily to increases in salaries and benefits, furniture and equipment expense and increases in credit card and merchant expenses. The Corporation closed the Cooper Foster Park Road Banking Center on September 30, 2001 due to the close proximity of 4 banking centers all located within 3 miles. Along with shrinking margins, the Corporation faces potential uncontrollable increases in postage rates, F.D.I.C. deposit insurance premiums, Ohio franchise taxes and certain other operating expenses. The effective tax rate remained reduced to 33.7% from 34.2% during the first nine months of 2001 and 2000, respectively. The rate decrease is due to the increase in investments in tax exempt securities. Net income was $6,354,000 and $6,261,000 for the nine months ended September 30, 2001 and 2000, respectively. Net income per basic and diluted share was $1.48 and $1.45 for the nine months ended September 2001 and 2000, respectively. IMPACTS OF ACCOUNTING AND REGULATORY PRONOUNCEMENTS On July 20, 2001, The Financial Accounting Standards Board issued Statements No. 141, "Business Combinations" and No. 142, "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. adopted Statement 141 as of July 1, 2001 and will adopt Statement 142 as of January 1, 2002. Management is currently analyzing the effect Statement 142 will have on our financial statements. 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 23 resources or operations of the Corporation. 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, however we anticipate the current and near term interest rate environment will continue to squeeze our net interest margin and potentially our net income during the balance of 2001 and during the first and second quarter of 2002. 24 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 Federal Funds rates by 400 basis points during the first nine months 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. 25 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: (3) Exhibit (3)(I) - Articles of Incorporation - Incorporated by reference to the quarterly report on Form 10-Q for the period ending September 30, 2000, as filed on November 14, 2000 Exhibit (3)(II) - Code of Regulations - Incorporated by Reference to Form 8-K, as filed on January 4, 2001 (4) Exhibit (4) - Instrument Defining the Rights of Security Holders- Incorporated by reference to the LNB Bancorp, Inc. Second Amended Articles of Incorporation, included as an exhibit to the quarterly report on Form 10-Q for the period ending September 30, 2000, as filed November 14, 2000. (11) Exhibit (11) - Computation of Shares Used for Earnings Per Share Calculation. (19) Exhibit (19) - Third Quarter Report to Shareholders of LNB Bancorp, Inc., September 30, 2001 - EDGAR Version. There were no reports on Form 8-K filed for the nine months ended September 30, 2001. 26 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: November 13, 2001 /s/ Gregory D. Friedman _________________________ Gregory D. Friedman, CPA Executive Vice President and Chief Financial Officer Date: November 13, 2001 /s/ Mitchell J. Fallis _________________________ Mitchell J. Fallis, CPA Vice President and Chief Accounting Officer 27 LNB Bancorp, Inc. Form 10-Q Exhibit Index Pursuant to Item 601 (a) of Regulation S-K S-K Reference Exhibit Number (3)(I) Articles of Incorporation - Incorporated by reference to the quarterly report on Form 10-Q for the period ending September 30, 2000, as filed on November 14, 2000 (II) Code of Regulations - Incorporated by reference to Form 8-K, as filed on January 4, 2001 (4) Instrument Defining the Rights of Security Holders- Incorporated by reference to the LNB Bancorp, Inc. Second Amended Articles of Incorporation, included as an exhibit to the quarterly report on Form 10-Q for the period ending September 30, 2000, as filed November 14, 2000. (11) Computation of Shares Used for Earnings Per Share Calculations Footnote 2 Earnings Per Share on pages 13-14 of this Form 10Q is incorporated by reference. (19) Third Quarter Report to Shareholders of LNB Bancorp, Inc. September 30, 2001 - EDGAR Version. 28 LNB Bancorp, Inc. Exhibit to Form 10 - Q (For the nine months ended September 30, 2001) S - K Reference Number (19) Third Quarter Report to Shareholders of LNB Bancorp, Inc. (dated September 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 Third Quarter Report September 30, 2001 Logo: LNB Bancorp, Inc. and subsidiaries Inside contains: Message to shareholders, Unaudited EDGAR version Consolidated Balance Sheets for period ending September 30, 2001 and September 30, 2000, respectively, Unaudited EDGAR version Consolidated Statements of Income for the Nine Months ended September 30, 2001 and September 30, 2000, respectively, Home Equity Loan makes borrowing affordable Banking Center, ATMS, Investment Center and Subsidiary Locations 29 Message to Our Shareholders It's a pleasure, once again, to report on the progress of LNB Bancorp, Inc., and its owned subsidiary companies following the end of the third quarter of 2001. During the third quarter of 2001, LNB Bancorp, Inc. reached a record milestone in shareholders' equity. Earnings for the first nine months of 2001 reached $6,354,000, up from $6,261,000 during the first nine months of 2000. Third quarter's earnings for 2001 reached $2,193,000 compared to $2,161,000 for the third quarter of 2000. Numerous factors continue to restrain earnings growth during the first nine months of 2001. One continuing factor was the Federal Reserve Board's ninth consecutive interest rate cut, bringing the Fed Funds rate down a total of 400 basis or 61% from January 2001. 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 nine months of 2001. Nevertheless, despite these persistent factors, LNB Bancorp, Inc., was still able to generate modest record 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 manager our business for the opportunities accompanying the inevitable return to a more favorable economic environment. Basic and diluted earnings per share for the first nine months of 2001 reached $1.48, a 2% increase over the $1.45 amount reported for the same period in 2000. The 2000 and 2001 per share amounts have been adjusted to reflect the 2% stock dividend of July 2, 2001. Earnings for the first nine months of 2001 were higher than a year ago because of higher net interest income and non-interest income, offset in part by higher loan loss provision and operating expenses. Increases in net interest income for the nine months of 2001 were supported by strong commercial loan growth. Cash dividends declared per share for the first nine months of 2001 increased 3% compared to the first nine months of 2000. The year to date cash dividends declared per share in 2001 increased by $.02 to $.74 per share, up from $.72 per share in 2000. Assets increased 4.1% to $647.6 million, as of September 30, 2001, up $21.6 million from September 30, 2000. Net loans grew by $19.6 million from one year ago to $465.4 million at September 30, 2001, for a 4% increase. Commercial loan growth was strong accounting for almost all of the total loan growth during the twelve months ended September 30, 2001. 30 Deposits increased 5% to $519.2 million, up $23.1 million from one year ago. Increases in Checkinvest and Market Access accounts accounted for the deposit increase. Lorain National Bank operates 21 retail branches and 28 Atms in nine local communities. Shareholders' equity surpassed the $60 million mark for the first time in the history of LNB Bancorp, Inc. Shareholders' equity increased by $6.7 million during the twelve months ended September 30, 2001, for a 12% increase. Shareholders' equity amounted to $61.3 million or $14.28 per share at September 30, 2001 compared with $54.6 million or $12.72 per share at September 30, 2000. We appreciate and thank you for your continuing support and look forward to addressing you after the completion of another successful year of operations. Sincerely, /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.) 31 Dividends Basic Earnings Net Income Per Share Per Share Year Millions of Dollars Dollars* Dollars* 2001 $6,354 $ .74 $1.48 2000 $6,261 $ .72 $1.45 1999 $5,787 $ .66 $1.34 1998 $5,258 $ .60 $1.23 1997 $4,780 $ .48 $1.10 *Adjusted for stock dividends and splits 32 Consolidated Balance Sheets September 30 2001 2000 - ----------------------------------------------------------------------------- ASSETS: Cash and Due from Banks. . . . . . . . . . . . .$ 25,524,000 $ 27,897,000 Federal Funds Sold and Short-Term Investments. . 3,119,000 3,077,000 Federal Home Loan Bank and Federal Reserve Bank Stock, at Cost . . . . . . . . . . . . . . 3,537,000 3,098,000 Securities Held to Maturity, at Cost . . . . . . 17,908,000 44,529,000 Securities Available for Sale, at Fair Value . . 109,889,000 79,193,000 Loans. . . . . . . . . . . . . . . . . . . . . . 470,757,000 449,977,000 Reserve for Loan Losses. . . . . . . . . . . . . (5,412,000) (5,184,000) ----------------------------- NET LOANS. . . . . . . . . . . . . . . . . . . . 465,345,000 444,793,000 ----------------------------- Premises, Equipment and Intangible Assets, (net) . . . . . . . . . . . . . . . . . 14,147,000 15,203,000 Accrued Interest Receivable and Other Assets. . . . . . . . . . . . . . . . . . 8,142,000 8,197,000 ----------------------------- TOTAL ASSETS . . . . . . . . . . . . . . . . . .$647,611,000 $625,987,000 ----------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY: Noninterest-Bearing Deposits . . . . . . . . . .$ 83,711,000 $ 84,426,000 Interest-Bearing Deposits. . . . . . . . . . . . 435,488,000 415,894,000 ----------------------------- TOTAL DEPOSITS . . . . . . . . . . . . . . . . . 519,199,000 500,320,000 ----------------------------- Securities Sold under Repurchase Agreements and Other Short-Term Borrowings. . . . . . . . 31,215,000 33,540,000 Federal Home Loan Bank Advances. . . . . . . . . 30,345,000 32,345,000 Accrued Interest, Taxes, Expenses and Other Liabilities. . . . . . . . . . . . . . . 5,523,000 5,138,000 ----------------------------- TOTAL LIABILITIES. . . . . . . . . . . . . . . . 586,282,000 571,343,000 ----------------------------- Preferred Stock. . . . . . . . . . . . . . . . . -0- -0- Common Stock . . . . . . . . . . . . . . . . . . 4,937,000 4,312,000 Additional Capital . . . . . . . . . . . . . . . 25,915,000 24,333,000 Retained Earnings. . . . . . . . . . . . . . . . 32,078,000 29,554,000 Accumulated Other Comprehensive (Loss) . . . . . 1,839,000 (655,000) Treasury Stock, at Cost. . . . . . . . . . . . . (2,900,000) (2,900,000) ----------------------------- TOTAL SHAREHOLDERS' EQUITY . . . . . . . . . . . 61,329,000 54,644,000 ----------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . .$647,611,000 $625,987,000 ----------------------------- 33 TOTAL ASSETS millions of dollars (A Total Assets 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.) TOTAL SHAREHOLDERS' EQUITY millions of dollars (A Total Shareholders' Equity 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.) TOTAL DEPOSITS millions of dollars (A Total Deposits 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.) Total Shareholders Total Assets Equity Total Deposits Year Millions of Dollars Millions of Dollars Millions of Dollars 2001 $647.6 $ 61.3 $519.2 2000 $626.0 $ 54.6 $500.3 1999 $587.5 $ 50.5 $475.1 1998 $523.6 $ 48.2 $433.3 1997 $496.8 $ 44.4 $422.1 34 Consolidated Statements of Income Nine Months Ended September 30, 2001 2000 - --------------------------------------------------------------------------- INTEREST INCOME: Interest and Fees on Loans . . . . . . . . . . .$28,624,000 $28,751,000 Interest and Dividends on Securities . . . . . . 5,540,000 5,530,000 Interest on Federal Funds Sold and Short-term Investments. . . . . . . . . . . . . 126,000 171,000 --------------------------- TOTAL INTEREST INCOME. . . . . . . . . . . . . . 34,290,000 34,452,000 --------------------------- INTEREST EXPENSE: Interest on Deposits . . . . . . . . . . . . . . 11,622,000 11,629,000 Interest on Securities Sold Under Repurchase Agreements and Other Short-term Borrowings. . . 942,000 1,355,000 Interest on Federal Home Loan Bank Advances. . . 965,000 987,000 --------------------------- TOTAL INTEREST EXPENSE . . . . . . . . . . . . . 13,529,000 13,971,000 --------------------------- NET INTEREST INCOME. . . . . . . . . . . . . . . 20,761,000 20,481,000 Provision for Loan Losses. . . . . . . . . . . . 1,350,000 1,250,000 --------------------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES . . . . . . . . . . . . . . . . 19,411,000 19,231,000 --------------------------- OTHER INCOME: Investment and Trust Services Division Income. . 1,723,000 1,704,000 Fees and Service Charges . . . . . . . . . . . . 4,855,000 4,425,000 Gains From Sales of Loans, Securities, and Buildings . . . . . . . . . . . 285,000 -0- Other Operating Income . . . . . . . . . . . . . 100,000 40,000 --------------------------- TOTAL OTHER INCOME . . . . . . . . . . . . . . . 6,963,000 6,169,000 --------------------------- OTHER EXPENSES: Salaries and Employee Benefits . . . . . . . . . 8,144,000 7,754,000 Net Occupancy Expense of Premises. . . . . . . . 1,142,000 1,108,000 Furniture and Equipment Expenses . . . . . . . . 1,573,000 1,697,000 Supplies and Postage . . . . . . . . . . . . . . 775,000 705,000 Ohio Franchise Tax . . . . . . . . . . . . . . . 486,000 418,000 Other Operating Expenses . . . . . . . . . . . . 4,665,000 4,195,000 --------------------------- TOTAL OTHER EXPENSES . . . . . . . . . . . . . . 16,785,000 15,877,000 --------------------------- INCOME BEFORE INCOME TAXES . . . . . . . . . . . 9,589,000 9,523,000 --------------------------- Income Taxes . . . . . . . . . . . . . . . . . . 3,235,000 3,262,000 --------------------------- 35 NET INCOME . . . . . . . . . . . . . . . . . . .$ 6,354,000 $ 6,261,000 --------------------------- PER SHARE DATA: BASIC EARNINGS PER SHARE . . . . . . . . . . . . $ 1.48 $ 1.45 --------------------------- DILUTED EARNINGS PER SHARE . . . . . . . . . . . $ 1.48 $ 1.45 --------------------------- DIVIDENDS DECLARED PER SHARE . . . . . . . . . . $ .74 $ .72 =========================== Logos LNB Bancorp, Inc. and subsidiaries, LNBB NASDAQ Listed, FDIC Insured, Federal Home Loan Bank System, Equal Housing Lender 36 Home Equity Loan makes borrowing affordable This fall, qualified homeowners have an opportunity to take advantage of attractive interest rates with an LNB home equity loan. The Bank's loan sale advertising prominently features the availability of a $10,000 loan for a monthly payment of just $99. Unlike some competitors' offers, the LNB home equity loan does not require a minimum loan amount, nor does it require an automatic debit from a checking account. Lastly, the LNB home equity loan is a 15-year note and not 20 like other competitors require. The LNB equity loan offer will be offered into the fourth quarter. For information on the LNB equity loan, call our customer service department at (440) 989-3348. LNB restructures West Lorain service delivery Lorain National Bank plans to renovate and add 1,400 square feet of new customer service space to its Amherst office at 1175 Cleveland Avenue as part of a two-phase restructuring of its Amherst and west Lorain service area. Due to close proximity of branch offices on Lorain's west side, adjacent to Amherst, the bank closed its office at 1920 cooper Foster Park Road during the third quarter. LNB provided its customers the option of banking at the soon-to-be-expanded Amherst office, 1.3 miles away, or at one of three other offices nearby, all located within three miles. Customers' accounts will not be affected by the change. Lorain National Bank operates branch offices east of the Cooper Foster location at Lake Avenue, Oberlin Avenue and on West Park Drive, just off Route 58 on Lorain's west side. The neighboring offices each feature multi- lane drive-in banking and spacious lobbies. The Amherst expansion will provide much-needed floor space for the well established yet growing Amherst office. The building will also receive a contemporary face-lift of its exterior. The 40-year-old office will be given a completely new architectural look, including new entryway elevations, featuring smoked-glass and anodized framing. First Choice Checking offers rewarding package Customers who maintain at least $10,000 in balances in deposits and certain loans are entitled to service-charge-free interest-bearing checking in LNB's First Choice Checking program. The bank promoted First Choice Checking at all of its banking offices, involving branch merchandising posters and a sales campaign to spread the word about one of LNB's best checking product values. 37 The program concluded during the third quarter. The bank's LaGrange office opened more that three dozen new First Choice Checking packages during the promotion. For information on the LNB's First Choice checking account, call our customer service department at (440) 989-3348. 38 Back Cover: White background with black lettering and blue stripe across top of the page Three column format Banking Centers, ATMs, Investment Center and Subsidiary Locations Lorain National Bank Lorain Banking Centers Avon Lake Banking Center **Main **Avon Lake 457 Broadway 240 Miller Road Lorain, Ohio 44052 Avon Lake, Ohio 44012 (440) 244-7185 (440) 933-2186 **Sixth Street Drive-In Elyria Banking Center 200 Sixth Street **Ely Square Lorain, Ohio 44052 124 Middle Avenue (440) 244-7242 Elyria, Ohio 44035 (440) 323-4621 **Kansas Avenue 1604 Kansas Avenue **Cleveland Street Lorain, Ohio 44052 801 Cleveland Street (440) 288-9151 Elyria, Ohio 44035 (440) 365-8397 **Oberlin Avenue 3660 Oberlin Avenue **Lake Avenue Lorain, Ohio 44053 42935 North Ridge Road (440) 282-9196 Elyria Township, Ohio 44035 (440) 233-7196 **Pearl Avenue 2850 Pearl Avenue **Midway Mall Lorain, Ohio 44055 6395 Midway Mall Blvd. (440) 277-1103 Elyria, Ohio 44035 (440) 324-6530 **West Park Drive 2130 West Park Drive **Elyria United Methodist Village Lorain, Ohio 44053 807 West Avenue (440) 989-3131 Elyria, Ohio 44035 (440) 323-6488 Amherst Banking Center **Amherst 1175 Cleveland Avenue **ATM service available wherever Amherst, Ohio 44001 you see this symbol (440) 988-4423 *Restricted to residents, their visitors and employees 39 Village of LaGrange Banking Center **Cooper-Foster Park Road **Village of LaGrange 1920 Cooper-Foster Park Road 546 North Center Street Lorain, Ohio 44053 Village of LaGrange, Ohio 44050 (440) 355-6734 **Dad's Sunoco 7580 Leavitt Road Oberlin Banking Centers State Route 58 **Kendal at Oberlin* Amherst, Ohio 44001 600 Kendal Drive Oberlin, Ohio 44074 **Fligner's Supermarket (440) 774-5400 1846 Broadway Lorain, Ohio 44052 **Oberlin 40 East College Street **Gateway Plaza Oberlin, Ohio 44074 3451 Colorado Avenue (440) 775-1361 Lorain, Ohio 44052 Olmsted Township Banking Centers **Lakeland Medical Center **Olmsted Township 3700 Kolbe Road 27095 Bagley Road Lorain, Ohio 44053 Olmsted Township, Ohio 44138 (440) 235-4600 **Lorain County Community College 1005 North Abbe Road The Renaissance Elyria, Ohio 44035 26376 John Road Olmsted Township, Ohio 44138 **Lowe's Home (440) 427-0041 Improvement Warehouse 620 Midway Boulevard Vermilion Banking Center Elyria, Ohio 44035 **Vermilion 4455 East Liberty Avenue **Mobile ATM Vermilion, Ohio 44089 2130 West Park Drive (440) 967-3124 Lorain, Ohio 44053 Westlake Banking Centers Other Offices **Crossings of Westlake Executive 30210 Detroit Road 457 Broadway Westlake, Ohio 44145 Lorain, Ohio 44052 (440) 892-9696 (440) 244-7123 Westlake Village Branch Administration 28550 Westlake Village Drive 457 Broadway Westlake, Ohio 44145 Lorain, Ohio 44052 (440) 808-0229 (440) 244-7253 ATMs **Captain Larry's Marathon 1317 State Route 60 Vermilion, Ohio 44089 40 Commercial, Consumer All Other Offices Not Listed and Mortgage Loans Toll Free (800) 860-1007 457 Broadway Lorain (440) 244-6000 Lorain, Ohio 44052 Telebanker Visa Telebanker (440) 245-4562 2130 West Park Drive Telebanker (800) 610-9033 Lorain, Ohio 44053 (440) 989-3348 Charleston Insurance Agency, Inc. 457 Broadway Customer Service Lorain, Ohio 44052 2130 West Park Drive (440) 244-7158 Lorain, Ohio 44053 (440) 989-3348 Charleston Title Agency, LLC (800) 860-1007 424 Middle Avenue Elyria, Ohio 44035 Human Resources (440) 244-5212 2130 West Park Drive Lorain, Ohio 44053 Internet: www.4LNB.com (440) 989-3139 Logo: LNB Operations Bancorp, Inc. 2130 West Park Drive and subsidiaries Lorain, Ohio 44053 (440) 989-3315 Purchasing 2150 West Park Drive Lorain, Ohio 44053 (440) 989-3327 Investor Relations 457 Broadway Lorain, Ohio 44052 (440) 244-7317 Investment and Trust Services 457 Broadway Lorain, Ohio (440) 244-7226 LNB Investment Center 457 Broadway Lorain, Ohio 44052 (440) 244-7158 (800) 845-2152 -----END PRIVACY-ENHANCED MESSAGE-----