10-Q 1 lnb10q202.txt LNB BANCORP, INC. 2ND QUARTER 10Q 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, 2002 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 August 14, 2002: 4,401,032 shares Class of Common Stock: $1.00 par value 2 LNB Bancorp, Inc. Quarterly Report on Form 10-Q Quarter Ended June 30, 2002 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 17 Item 3 - Quantitative and Qualitative Disclosures about Market Risk 26 Part II - Other Information Item 1 - Legal Proceedings 27 Item 2 - Changes in Securities 27 Item 3 - Defaults Upon Senior Securities 27 Item 4 - Submission of Matters to a Vote of Security Holders 27 Item 5 - Other Information 28 Item 6 - Exhibits and Reports on Form 8-K 28 Signatures 29 Exhibit Index 30 3 FORM 10-Q LNB BANCORP, INC. PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS JUNE 30, DECEMBER 31, CONDENSED CONSOLIDATED BALANCE SHEETS 2002 2001 (Unaudited) ------------- ------------- ASSETS: Cash and due from banks $ 28,053,000 $ 28,017,000 Federal funds sold and short-term investments 3,463,000 3,488,000 Securities: Available for sale, at fair value 131,224,000 117,628,000 Held to maturity, at cost (fair value $12,225,000 and $17,485,000, respectively) 11,915,000 17,191,000 Federal Home Loan Bank and Federal Reserve Bank and other equity stock, at cost 3,658,000 3,582,000 -------------- ------------- Total Securities 146,797,000 138,401,000 ------------- ------------- Loans: Portfolio loans 490,653,000 465,029,000 Loans available for sale 8,449,000 12,459,000 ------------- ------------- Total Loans 499,102,000 477,488,000 Reserve for loan losses (6,140,000) (5,890,000) ------------- ------------- Net loans 492,962,000 471,598,000 ------------- ------------- Bank premises and equipment, net 10,635,000 10,520,000 Intangible assets 3,288,000 3,470,000 Accrued interest receivable 3,459,000 3,796,000 Other assets 5,608,000 5,113,000 Foreclosed assets 167,000 123,000 ------------- ------------- TOTAL ASSETS $694,432,000 $664,526,000 ============= ============= STATEMENT CONTINUED ON NEXT PAGE 4 STATEMENT CONTINUED FROM PREVIOUS PAGE LIABILITIES AND SHAREHOLDERS' EQUITY: Deposits: Demand and other noninterest-bearing deposits $ 84,362,000 $ 87,488,000 Savings, Market Access and passbook Accounts 270,991,000 253,506,000 Certificates of deposit 198,158,000 177,273,000 ------------- ------------- Total deposits 553,511,000 518,267,000 ------------- ------------- Securities sold under repurchase agreements and other short-term borrowings 21,633,000 48,170,000 Federal Home Loan Bank advances, short-term 22,185,000 10,750,000 Federal Home Loan Bank advances, long-term 26,690,000 19,595,000 Accrued interest payable 1,114,000 1,131,000 Accrued taxes, expenses, and other liabilities 5,109,000 4,475,000 ------------- ------------- TOTAL LIABILITIES 630,242,000 602,388,000 ------------- ------------- 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 4,417,558 and 4,417,558, respectively and Shares outstanding 4,317,558 and 4,317,558 respectively 4,417,000 4,417,000 Additional capital 26,238,000 26,238,000 Retained earnings 35,303,000 33,126,000 Accumulated other comprehensive income 1,132,000 1,257,000 Treasury stock at cost, 100,000 shares (2,900,000) (2,900,000) ------------- ------------- TOTAL SHAREHOLDERS' EQUITY 64,190,000 62,138,000 ------------- ------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $694,432,000 $664,526,000 ============= ============= 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) ------------------------ 2002 2001 INTEREST INCOME ------------------------ Interest and fees on loans: Taxable $17,027,000 $19,407,000 Tax-exempt -0- 5,000 Interest and dividends on securities: U.S. Treasury securities 7,000 57,000 U.S. Government agencies and securities 3,060,000 3,288,000 States and political subdivision 275,000 180,000 Other debt and equity securities 242,000 184,000 Interest on Federal funds sold and other interest-bearing instruments 52,000 88,000 ----------- ----------- TOTAL INTEREST INCOME 20,663,000 23,209,000 ----------- ----------- INTEREST EXPENSE: Interest on Deposits: Time certificates of $100,000 and over 629,000 1,434,000 Other deposits 4,547,000 6,606,000 Interest on securities sold under repurchase agreements and other short-term borrowings 244,000 636,000 Interest on Federal Home Loan Bank advances 861,000 659,000 ----------- ----------- TOTAL INTEREST EXPENSE 6,281,000 9,335,000 ----------- ----------- NET INTEREST INCOME 14,382,000 13,874,000 Provision for loan losses 1,125,000 900,000 NET INTEREST INCOME AFTER PROVISION ----------- ----------- FOR LOAN LOSSES 13,257,000 12,974,000 ----------- ----------- NONINTEREST INCOME: Investment and Trust Services Division income 1,043,000 1,161,000 Service charges on deposit accounts 1,910,000 1,635,000 Other service charges, exchanges and fees 1,595,000 1,458,000 Gains on sales of securities and loans 585,000 97,000 Other operating income 172,000 75,000 ----------- ----------- TOTAL NONINTEREST INCOME 5,305,000 4,426,000 ----------- ----------- STATEMENT CONTINUED ON NEXT PAGE 6 STATEMENT CONTINUED FROM PREVIOUS PAGE NONINTEREST EXPENSES: Salaries and employee benefits 5,762,000 5,356,000 Net occupancy expense of premises 745,000 778,000 Furniture and equipment expense 1,088,000 1,045,000 Supplies and postage 533,000 543,000 Ohio franchise tax 228,000 324,000 Card related expenses 648,000 597,000 Other operating expenses 3,112,000 2,505,000 ------------ ----------- TOTAL NONINTEREST EXPENSES 12,116,000 11,148,000 ------------ ----------- INCOME BEFORE INCOME TAXES 6,446,000 6,252,000 INCOME TAXES 2,104,000 2,091,000 ------------ ----------- NET INCOME $ 4,342,000 $ 4,161,000 ============ =========== PER SHARE DATA: BASIC EARNINGS PER SHARE $ .99 $ .95 ====== ====== DILUTED EARNINGS PER SHARE $ .99 $ .95 ====== ====== DIVIDENDS DECLARED PER SHARE $ .50 $ .49 ====== ====== 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) ------------------------ 2002 2001 INTEREST INCOME ----------------------- Interest and fees on loans: Taxable $ 8,655,000 $ 9,574,000 Tax-exempt -0- 2,000 Interest and dividends on securities: U.S. Treasury securities 1,000 27,000 U.S. Government agencies and corporations 1,525,000 1,615,000 States and political subdivisions 141,000 108,000 Other debt and equity securities 119,000 112,000 Interest on Federal funds sold and other interest-bearing instruments 33,000 47,000 ----------- ----------- TOTAL INTEREST INCOME 10,474,000 11,485,000 ----------- ----------- INTEREST EXPENSE: Interest on Deposits: Time certificates of $100,000 and over 331,000 656,000 Other deposits 2,271,000 3,205,000 Interest on securities sold under repurchase agreements and other short-term borrowings 93,000 240,000 Interest on Federal Home Loan Bank advances 480,000 331,000 ----------- ----------- TOTAL INTEREST EXPENSE 3,175,000 4,432,000 ----------- ----------- NET INTEREST INCOME 7,299,000 7,053,000 Provision for loan losses 525,000 450,000 NET INTEREST INCOME AFTER PROVISION ----------- ----------- FOR LOAN LOSSES 6,774,000 6,603,000 ----------- ----------- NONINTEREST INCOME: Investment and Trust Services Division income 468,000 603,000 Service charges on deposit accounts 994,000 836,000 Other services charges, exchanges and fees 1,129,000 814,000 Gains from sales of securities and loans 11,000 68,000 Other operating income 65,000 62,000 ----------- ----------- TOTAL NONINTEREST INCOME 2,667,000 2,383,000 ----------- ----------- STATEMENT CONTINUED ON NEXT PAGE 8 STATEMENT CONTINUED FROM PREVIOUS PAGE NONINTEREST EXPENSES: Salaries and employee benefits 2,845,000 2,756,000 Net occupancy expense of premises 364,000 392,000 Furniture and equipment expense 557,000 526,000 Supplies and postage 257,000 268,000 Ohio franchise tax 167,000 162,000 Card related expenses 265,000 315,000 Other operating expenses 1,667,000 1,330,000 ------------ ------------ TOTAL NONINTEREST EXPENSES 6,122,000 5,749,000 ------------ ------------ INCOME BEFORE INCOME TAXES 3,319,000 3,237,000 INCOME TAXES 1,082,000 1,082,000 ------------ ------------ NET INCOME $ 2,237,000 $ 2,155,000 ============ ============ PER SHARE DATA: BASIC EARNINGS PER SHARE $ .51 $ .49 ====== ====== DILUTED EARNINGS PER SHARE $ .51 $ .49 ====== ====== 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 SIX MONTHS ENDED CONDENSED CONSOLIDATED STATEMENTS JUNE 30, OF CASH FLOWS (UNAUDITED) ------------------------- 2002 2001 CASH FLOWS FROM OPERATING ACTIVITIES: ------------------------- Interest received $21,188,000 $23,850,000 Other income received 4,622,000 3,141,000 Interest paid (6,298,000) (9,426,000) Cash paid for salaries and employee benefits (5,524,000) (5,909,000) Net occupancy expense of premises paid (593,000) (598,000) Furniture and equipment expenses paid (454,000) (326,000) Cash paid for supplies and postage (533,000) (543,000) Cash paid for other operating expenses (3,345,000) (2,485,000) Federal income taxes paid (2,378,000) (1,955,000) ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 6,685,000 5,749,000 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities of securities held to maturity 5,800,000 10,795,000 Proceeds from sales and maturities of securities available for sale 45,030,000 33,091,000 Purchases of securities held to maturity (600,000) (607,000) Purchases of securities available for sale (58,571,000) (43,207,000) Net (increase) in loans made to customers (22,408,000) (9,715,000) Purchases of bank premises and equipment and intangible assets (901,000) (510,000) Proceeds from sales of bank premises, and equipment 26,000 (16,000) Proceeds from liquidation of other foreclosed assets 42,000 296,000 Purchases of other foreclosed assets (86,000) (247,000) ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES (31,668,000) (10,120,000) ----------- ----------- 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 (3,126,000) 203,000 Net increase in savings and passbook deposits 17,485,000 11,237,000 Net increase in certificates of deposit 20,885,000 1,002,000 Net increase (decrease) in securities sold under repurchase agreements and other short-term borrowings (26,537,000) (7,204,000) Proceeds from Federal Home Loan Bank advances 35,830,000 5,000,000 Payment on Federal Home Loan Bank advances (17,300,000) -0- Proceeds from exercise of stock options 1,000 3,000 Dividends paid (2,244,000) (2,210,000) ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES 24,994,000 8,031,000 ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 11,000 3,660,000 CASH AND CASH EQUIVALENTS AT BEGINNING 31,505,000 25,136,000 OF YEAR ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $31,516,000 $28,796,000 =========== =========== RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: NET INCOME $ 4,342,000 $ 4,161,000 Adjustments to reconcile net income to net cash provided by operating activities: Gain on sale of investments & loans 585,000 103,000 Depreciation and amortization 786,000 899,000 Amortization of intangible assets 188,000 188,000 Amortization of deferred loan fees and costs, net (81,000) 117,000 Provision for loan losses 1,125,000 900,000 Decrease in accrued interest receivable 331,000 609,000 (Increase) in other assets (288,000) (807,000) (Decrease) in accrued interest payable (17,000) (91,000) Increase (decrease) in accrued taxes, expenses and other liabilities (274,000) 136,000 Others, net (12,000) (466,000) ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES $ 6,685,000 $ 5,749,000 =========== =========== 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, 2002, compared to December 31, 2001 and the related unaudited condensed consolidated statements of income for the three and six months ended June 30, 2002 and the related unaudited condensed consolidated statements of cash flows for the six months ended June 30, 2002 compared to the same periods in 2001. 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 the Corporation's December 31, 2001 Annual Report toShareholders. 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, 2002, the unaudited condensed consolidated statements of income for the three and six months ended June 30, 2002 and 2001 and the unaudited condensed consolidated statements of cash flows for the six months ended June 30, 2002 are prepared in accordance with accounting principles generally accepted in the United States of America. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The above mentioned statements reflect all 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. All such adjustments are normal and recurring in nature. The consolidated balance sheet at December 31, 2001 has been taken from the audited financial statements and condensed. It is suggested that these unaudited condensed consolidated financial statements be read in conjunction 12 with the financial statements and notes thereto included in the Corporation's December 31, 2001 Annual Report to Shareholders. The results of operations for the period ended June 30, 2002 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 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 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 is 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 2001 amounts have been reclassified to conform to 2002 presentation. 13 2. EARNINGS PER SHARE DATA Earnings per share is calculated as follows: For the 6 Months ended June 30, 2002 Income Shares Per-Share (Numerator) (Denominator) Amount -------------------------------------- Net Income $4,342,000 Basic EPS Income available to common shareholders $4,342,000 4,401,032 $ .99 ===== Effect of Dilutive Securities Incentive Stock Options -0- 2,721 ---------- --------- Diluted EPS Income available to common shareholders + assumed conversions $4,342,000 4,403,753 $ .99 ========== ========= ===== 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 4,381,275 $ .95 ===== Effect of Dilutive Securities Incentive Stock Options -0- 4,279 ---------- --------- Diluted EPS Income available to common shareholders + assumed conversions $4,161,000 4,385,554 $ .95 ========== ========= ===== 14 For the 3 Months ended June 30, 2002 Income Shares Per-Share (Numerator) (Denominator) Amount -------------------------------------- Net Income $2,237,000 Basic EPS Income available to common shareholders $2,237,000 4,401,032 $ .51 ===== Effect of Dilutive Securities Incentive Stock Options -0- 3,473 ---------- --------- Diluted EPS Income available to common shareholders + assumed conversions $2,237,000 4,404,505 $ .51 ========== ========= ===== 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 4,381,275 $ .49 ===== Effect of Dilutive Securities Incentive Stock Options -0- 3,627 ---------- --------- Diluted EPS Income available to common shareholders + assumed conversions $2,155,000 4,384,902 $ .49 ========== ========= ===== 15 3. COMPREHENSIVE INCOME The Corporation's comprehensive income for the six months ended June 30, 2002 and 2001 are as follows: For the six months ended June 30, 2002 2001 --------------------------------- Net income $4,342,000 $4,161,000 Other comprehensive income: Change in unrealized gain on securities available for sale, net of tax (credit) of $(63,000) and $425,000 (122,000) 825,000 ----------- ----------- Comprehensive Income $4,220,000 $4,986,000 Disclosure of Reclassification Amount Unrealized holding gains arising during the period net of tax $ 234,000 $ 878,000 Less reclassification adjustment for gains included in net income net of tax of $184,000 and $27,000 356,000 53,000 ----------- ----------- Change in unrealized gain on securities available for sale, net of tax $ (122,000) $ 825,000 =========== =========== The Corporation's comprehensive income for the three months ended June 30, 2002 and 2001 are as follows: For the three months ended June 30, 2002 2001 ----------------------------------- Net income $2,237,000 $2,155,000 Other comprehensive income: Change in unrealized gain on securities available for sale, net of tax of $351,000 and $34,000 682,000 65,000 ----------- ------------ Comprehensive Income $2,919,000 $2,220,000 16 Disclosure of Reclassification Amount Unrealized holding gains arising during the period net of tax $ 856,000 $ 103,000 Less reclassification adjustment for gains included in net income net of tax of $90,000 and $19,000 174,000 38,000 ----------- ----------- Change in unrealized gain on securities available for sale, net of tax $ 682,000 $ 65,000 =========== =========== 4. CRITICAL ACCOUNTING POLICIES The Corporation maintains critical accounting policies for reserve for loan losses, classification and evaluation of securities and a deferred tax asset valuation allowance. Refer to notes 1, 5, 7 and 12 of Notes to Consolidated Financial Statements of the 2001 Annual Report to Shareholders for the year ended December 31, 2001 for additional information incorporated by reference. 5. INTANGIBLE ASSETS The Corporation accounts for intangible assets under the provisions of Statement of Financial Accounting Standard No. 72 "Accounting for Certain Acquisitions of Banking or Thrift Institutions". The following intangible assets and related amortization arising from a 1997 branch acquisition and included in the accompanying condensed consolidated financial statements are summarized as follows at June 30, net of accumulated amortization: 2002 2001 -------------------------- Goodwill $2,695,000 $2,959,000 Core deposit intangible 586,000 700,000 -------------------------- Total intangible assets $3,281,000 $3,659,000 ========================== Amortization expense for intangible assets totaled $188,000 for the six months ended June 30, 2002 and 2001. 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 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 $29,906,000 during the first half of 2002, to $694,432,000. This growth was funded by increases in savings deposits, market access accounts, certificates of deposit, Federal Home Loan Bank advances and Shareholders' equity. Total earning assets increased 4.8% to $649,362,000 at June 30, 2002 from $619,377,000 at December 31, 2001. The ratio of earning assets to total assets increased from 93.21% at December 31, 2001 to 93.51% at June 30, 2002. The loan to deposit ratio has decreased from 92.13% at 2001 year-end to 90.17% at June 30, 2002. Federal funds sold and other interest bearing investments decreased by $25,000 during the first six months of 2002. Total securities increased $8,396,000 ending the first half at $146,797,000. At June 30, 2002 gross unrealized gains and (losses) in the investment portfolio were approximately $2,137,000 and $(76,000), respectively. The increase in the market value of the securities portfolio is due to market 18 interest rate fluctuations. Net loans increased $21,364,000 during the first half to $492,962,000 at June 30, 2002. This increase was a result of good loan demand in our market. Commercial and consumer loan growth was particularly strong, showing first half increases of $24,338,000 and $7,905,000, respectively. mortgage loans decreased by $10,629,000, during the first half of 2002. The consumer loan portfolio has increased because of increases in quality indirect automobile credits and home equity lines of credit while mortgages decreased due to refinancing. The reserve for loan losses ended the quarter at $6,140,000 supported by a provision for loan losses of $1,125,000, recoveries of $173,000 and loan charge-offs of $1,048,000. The reserve for loan losses as a percentage of ending loans was 1.23% and 1.23% at December 31, 2001 and June 30, 2002, respectively. Corporate management believes that the reserve for loan losses at June 30, 2002 remains at an appropriate level. The ratio of the reserve for loan losses to nonperforming assets increased to 382.7% as of June 30, 2002 compared to 247.7% at December 31, 2001. 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, 2002. Nonperforming assets at June 30, 2002 totaled $1,817,000, up from $1,554,000 at March 31, 2002. The second quarter increase in nonperforming assets of $263,000 resulted from loans being brought current in the amount of $366,000, loans charged-off in the amount of $59,000, liquidations of nonaccrual loans of $74,000, increases in nonaccrual loans of $736,000 and increases in foreclosed assets of $26,000. The level of nonperforming assets increased by $378,000 during the first half of 2002. This increase is the result of an increase in nonaccrual loans of $334,000 as well as by an increase in other foreclosed assets owned in the amount of $44,000. The increase in nonaccrual loans is due to decreases in nonaccrual principal balances of $732,000 which have been paid off or brought current, loans charged-off in the amount of $72,000 and liquidations of nonaccrual loans of $187,000 and increases in nonaccrual principal balances of $1,325,000 which includes seven large commercial loan credits of $980,000 and 34 small consumer loan credits. The increase in foreclosed assets resulted from the acquisition of one residential property in the amount of $35,000 less a net decrease in repossessed vehicles of $9,000. The level of nonperforming assets remains at relatively low levels and Corporate management believes nonperforming assets are well collateralized. 19 The table below presents the level of nonperforming assets at the end of the last four calendar quarters. Amounts in thousands 06/30/02 03/31/02 12/31/01 09/30/01 -------- -------- -------- -------- Nonperforming Assets: Nonaccrual $1,650 $1,413 $1,316 $2,518 Restructured 0 0 0 0 Other Foreclosed Assets 167 141 123 0 ------ ------ ------ ------ Total Nonperforming Assets $1,817 $1,554 $1,439 $2,518 ====== ====== ====== ====== Reserve for loan losses to total nonperforming assets 337.9% 247.7% 409.3% 214.9% ====== ====== ====== ====== Accruing loans past due 90 days $ 327 $ 151 $ 149 $ 66 ====== ====== ====== ====== 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, 2002, potential problem loans totaled $11,955,000, an increase of $3,376,000 from the December 31, 2001 balance. The increase in potential problem loans during 2002 is primarily due to the addition of four large commercial credits that have weakened due to depressed economic conditions in the steel industry. 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, 2002 there are no significant concentrations of credit in the loan portfolio. The Corporation had outstanding loan and credit commitments to make loans totaling $121,626,000 and $95,893,000 at June 30, 2002 and December 31, 2001, 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 programs during the past twelve months. Commercial loan demand increased in the second quarter of 2002 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 $35,244,000 during the first half to $553,511,000. Noninterest-bearing deposits decreased to $84,362,000, at June 30, 2002 for a decrease of $3,126,000, while interest-bearing deposits climbed to $469,149,000 for an increase of $38,370,000. 20 Federal funds purchased and securities sold under agreements to repurchase increased $7,537,000 during the first half mainly due to decreases in Federal Funds purchased. 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, 2002, short-term security investments with maturities of one year or less totaled $10,144,000, which represented 7.2% of total securities. Adding cash and due from banks of $28,053,000, and Federal Funds sold and other interest bearing instruments of $3,463,000, total liquid assets represented 5.0% 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 $24,000,000, $40,000,000 and $34,346,000, respectively, with credit available in the amounts of $24,000,000, $40,000,000 and $34,346,000, respectively. Additional sources of liquidity at June 30, 2002 could be provided by available unused Federal Home Loan Bank long-term advances of $17,000,000 collateralized by qualified mortgages. CAPITAL RESOURCES LNB Bancorp, Inc. continues to maintain a strong capital position. Total shareholders' equity increased to $64,190,000, at June 30, 2002. The increase resulted primarily from $4,342,000 of net income generated from the first half of operations less a cash dividend declared to shareholders of $2,179,000. The change in interest rates experienced in the first half of 2002 has caused a decrease in the overall market value of available for sale securities which resulted in a decrease in accumulated other comprehensive income of $122,000 for the six months ended June 30, 2002. As of June 30, 2002, the LNB Bancorp, Inc. held 100,000 shares of common stock as treasury stock at a 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 21 percent or greater. The Corporation's risk-based capital and leverage ratios along with the ratios required to be adequately capitalized have exceeded the ratios for a well-capitalized financial institution for all periods presented above. The Corporation's capital and leverage ratios as of June 30, 2002 and 2001 follow together with those ratios required for the Corporation to be considered adequately capitalized. June 30, --------------------- 2002 2001 ------ ------ Tier I capital ratio 12.57% 11.97% Required Tier I capital ratio 4.00% 4.00% Total capital ratio 13.77% 13.11% Required total capital ratio 8.00% 8.00% Leverage ratio 9.58% 8.77% 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 Earnings for 2002 were higher than a year ago because of higher net interest income and noninterest income, offset in part by a higher loan loss provision and operating expenses. Increases in net interest income were fueled by increases in commercial and consumer loans combined with growth and decreases in rates paid on interest bearing liabilities. The increases in noninterest income resulted primarily from increases in fees and service charges and increases of gains on sales of loans and investments. Increases in noninterest expenses resulted from increases in salaries and employee benefits, marketing expenses and outside services. The softening of the economy and its related impact on credit plus the increase in the loan growth resulted in the recording of higher levels of loan loss provision in the first half of 2002, compared with the same period in 2001. The net interest margin for the six months ended June 30, 2002 decreased 20 basis points to 4.58% compared to 4.78% for the same period one year ago. The net interest margin for the second quarter of 2002 was 4.53% compared to 4.87% for the second quarter of 2001. Interest and fees on loans for the first half of 2002 decreased $2,385,000 when compared to the first half of 2001. Decreased loan income resulted from 22 the impact of increases in the average loan portfolio balance for the first half of 2002 by $36,226,000 to $489,738,000 as compared to the first half of 2001 offset by decreases in interest rates. Interest and dividends on securities was $3,584,000 for the first half of 2002 for a decrease of $161,000 over the same period in 2001. Decreased investment income resulted from the impact of increases in the average investment portfolio balance for the first half of 2002 of $10,959,000 to $138,046,000 as compared to the first half of 2001, offset by decreases in interest rates for 2002 compared with 2001. Interest and dividends on securities represented 17.3% of total interest income at June 30, 2002 compared to 16.0% at June 30, 2001. Interest on Federal funds sold and short-term investments was $52,000 and $88,000 at June 30, 2002 and 2001,respectively. Total interest expense decreased by $3,054,000 when compared to the first half of 2001. The interest expense decrease resulted from decreases in deposit account interest of $2,864,000 and a decrease in interest expense from repurchase agreements and other short-term borrowings of $392,000, offset by increases in interest expense from Federal Home Loan Bank advances of $202,000. Also, total interest expense for the first half of 2002 was impacted by decreases in interest rates paid on savings accounts, checkinvest, market access accounts, certificate of deposit accounts and repurchase agreements when compared to the first half of 2001. Total noninterest income increased by $879,000 when compared to the first half of 2001. This increase resulted from increases in service charges of $275,000, increases in other service charges, and exchanges and fees of $137,000, increases in other operating income of $97,000 and gains on sales of investments and securities of $460,000 offset by decreases in income from Investment and Trust Services Division income of $118,000. 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, 2002 was $12,116,000, 8.7% above the first six months of 2001. This increase was due primarily to increases in salaries and employee benefits, supplies and postage and increases in card-related expenses, outside services and marketing expenses. The effective tax rate decreased slightly from 33.5% during the first half of 2001 to 32.6% during the first half of 2002. 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 $4,342,000 and $4,161,000 for the six months ended June 30, 2002 and 2001, respectively. Net income per basic and diluted share was $.99 and $.95 for the six months ended June 30, 2002 and 20001 respectively, after giving effect for a two percent stock dividend paid on July 1, 2002. The annualized return on average assets for the 2002 first half was 1.30 percent compared with 2001's 1.34 percent. The annualized return on average 23 shareholders' equity for the first half was 13.82 percent compared with 14.39 percent last year. SECOND QUARTER INFORMATION Interest and fees on loans for the second quarter of 2002 decreased $921,000 when compared to the second quarter of 2001. Decreased loan income resulted from the impact of increases in the average loan portfolio balance for the second quarter of 2002 as compared to the second quarter of 2001 offset by decreases in interest rates. Interest and dividends on securities was $1,786,000 for the second quarter of 2002 for a decrease of $76,000 over the same period in 2001. Decreased investment income resulted from the impact of increases in the average investment portfolio balance for the second quarter of 2002 as compared to the second quarter of 2001, offset by decreases in interest rates for 2002 compared with 2001. Interest on Federal funds sold and short-term investments was $33,000 and $47,000 for the second quarter of 2002 and 2001, respectively. Total interest expense for the second quarter of 2002 decreased by $1,257,000 when compared to the second quarter of 2001. The interest expense decrease resulted from decreases in deposit account interest of $1,259,000 and a decrease in interest expense from repurchase agreements and other short-term borrowings of $147,000, offset by increases in interest expense from Federal Home Loan Bank advances of $149,000. Also, total interest expense for the second quarter of 2002 was impacted by decreases in interest rates paid on savings accounts, checkinvest, market access accounts, certificate of deposit accounts and repurchase agreements when compared to the second quarter of 2001. Total noninterest income increased by $284,000 when compared to the second quarter of 2001. This increase resulted from increases in service charges of $158,000, increases in other service charges, and exchanges and fees of $315,000, increases in other operating income of $3,000 offset by decreases in income from Investment and Trust Services Division income of $135,000 and gains on sales of investments and securities of $57,000. Noninterest expense for the three months ended June 30, 2002 was $6,122,000, 6.5% above the first three months of 2001. This increase was due primarily to increases in salaries and employee benefits, outside services and marketing expenses. 24 IMPACTS OF ACCOUNTING AND REGULATORY PRONOUNCEMENTS Corporate management is not aware of any current recommendations by the Financial Accounting Standards Board (FASB) or by regulatory authorities which, if they were implemented, would have a material effect on the liquidity, capital resources or operations of the Corporation. However, the potential impact of certain accounting and regulatory pronouncements warrant further discussion. In July 2001, the FASB issued Statement No. 142, "Accounting for Goodwill and Other Intangible Assets." SFAS No. 142 eliminates amortization of goodwill associated with business combinations completed after June 30, 2001. Effective January 1, 2002, all goodwill amortization expenses ceased and goodwill will be assessed (at least annually) for impairment at the reporting unit level by applying a fair-value-based test. SFAS No. 142 also provides additional guidance on acquired core deposit intangible requiring separate disclosure and amortization with impairment testing at least annually. LNB Bancorp, Inc. adopted SFAS No. 142 as of January 1, 2002 and reports Branch Goodwill and Core Deposit intangibles separately. The Corporation has determined that the provisions of SFAS No. 142 will have no effect on our financial position, results of operations or liquidity. In June 2001, the FASB issued Statement No. 143, "Accounting for Asset Retirement Obligations." Statement 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. Statement 143 is effective for fiscal years beginning after June 15, 2002. The Corporation has reviewed the provisions of Statement 143, and believes that upon adoption, it did not have a material impact on its financial position, results of operations or liquidity. In August 2001, the FASB issued Statement No. 144, "Accounting for the impairment or disposal of long-lived assets." SFAS No. 144 addresses the accounting and reporting for the impairment or disposal of long-lived assets. The SFAS No. 144 provides a single accounting model for long-lived assets to be disposed of. New criteria must be met to classify the asset as an asset held-for-sale. This statement also focuses on reporting the effects of disposal of a segment of a business. The provisions of SFAS No. 144 were effective for the Corporation January 1, 2002 and did not have a material impact on our financial position, results of operations or liquidity. In April 2002, the FASB issued Statement No. 145, "Rescission of FASB Statements No. 4, 44, and 64. Amendment of FASB Statement No. 13 and Technical Corrections." This Statement rescinds FASB No. 4, "Reporting Gains and Losses from Extinguishment of Debt," and FASB Statement No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements." This Statement also rescinds FASB Statement No. 44, "Accounting for Intangible Assets of Motor Carriers" and amends FASB Statement No. 13, "Accounting for 25 leases" which was written to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This Statement also amends other existing authoritative pronouncements to make various technical corrections. The provisions of this statement related to the recission of Statement No. 4 shall be for fiscal years beginning after May 15, 2002 and as it relates to Statement No. 13 shall be effective for transactions occurring after May 15, 2002. All other provisions of FASB No. 145 shall be effective for financial statements issued on or after May 15, 2002. The Corporation has reviewed the provisions of Statement No. 145 and believes that it will not have a material impact on its financial position, results of operation or cash flows. USA PATRIOT ACT On October 26, 2001, President Bush signed into law the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept And Obstruct Terrorism Act of 2001 (the "USA PATRIOT Act"). During the first quarter of 2002, the Financial Crimes Enforcement Network (FinCEN), a bureau of the Department of the Treasury, issued proposed and interim regulations as mandated by the USA PATRIOT Act that would: (i) prohibit certain financial institutions from providing correspondent accounts to foreign shell banks; (ii) require such financial institutions to take reasonable steps to ensure that correspondent accounts provided to foreign banks are not being used to indirectly provide banking services to foreign shell banks; (iii) require certain financial institutions that provide correspondent accounts to foreign banks to maintain records of the ownership of such foreign banks and their agents in the United States; (iv) require the termination of correspondent accounts of foreign banks that fail to turn over their account records in response to a lawful request from the Secretary of the Treasury or the Attorney General. Additionally the USA PATRIOT Act encourages information sharing among financial institutions and federal law enforcement agencies to identify, prevent, deter and report money laundering and terrorist activity. Management does not believe that the USA PATRIOT Act will have a material impact on the financial position, results of operation or liquidity of the Corporation. 26 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, 2001, 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 that there have been no significant changes in the Corporation's interest rate risk profile since December 31, 2001. 27 Part II - OTHER INFORMATION ITEM 1 - Legal Proceedings Previously reported in LNB Bancorp's Current Report on Form 8-K filed on June 7, 2002. See Item 6(b) of Part II of this Quarterly Report on Form 10Q. ITEM 2 - Changes in Securities None ITEM 3 - Defaults Upon Senior Securities None ITEM 4 - Submission of Matters to a Vote of Security Holders (a) LNB Bancorp Inc.'s 2002 Annual Meeting of Shareholders was held on April 16, 2002 . (b) Proxies were solicited by LNB Bancorp Inc.'s management pursuant to Regulation 14 under the Securities Exchange Act of 1934, there was no solicitation in opposition to management's nominees for election to the board of directors as listed in the proxy statement, and all such nominees were elected to the classes in the proxy statement pursuant to the vote of the shareholders. (c) Other matters voted upon (1)Election of directors to serve as Class II Directors until April 19, 2005 Annual Meeting of Shareholders as follows: FOR WITHHELD Terry D. Goode 2,579,693.78 65,426.27 Wellsley O. Gray 2,593,608.25 51,511.80 James R. Herrick 2,589,956.46 55,163.59 Benjamin G. Norton 2,595,106.57 50,013.48 John W.Schaeffer, M.D. 2,592,524.57 52,595.48 Gary C. Smith 2,589,725.78 55,394.27 The total number of shares of LNB Bancorp, Inc. Common Stock, $1.00 par value, outstanding as of March 5, 2002, the record date of the Annual Meeting was 4,315,558. 28 ITEM 5 - Other Information None ITEM 6 - Exhibits and Reports on Form 8-K (a) Exhibits - The following exhibits are filed as part of this report: EXHIBIT NO. EXHIBIT 3.1 LNB Bancorp, Inc. Second Amended Articles of Incorporation (Incorporated by reference to the quarterly report on Form 10-Q filed on November 14, 2000.) 3.2 LNB Bancorp, Inc. Amended Code of Regulations. (Incorporated by reference to the current report on Form 8-K filed on January 4, 2001.) 4. Instruments Defining the Rights of Security Holders. (See Exhibits 3.1 and 3.2) 99.1 Certification pursuant to 18 U.S.C. section 1350, as enacted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. 99.2 Certification pursuant to 18 U.S.C. section 1350, as enacted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K Registrant discloses that the Securities and Exchange Commission is conducting an informal inquiry of the Company's purchases of its common shares during the period of January 2000 to July 2001. The focus of the inquiry by the SEC is on trading activity after 3:30 p.m. ET, which is an alleged violation of SEC Rule 10b-18. The purchase of common stock, typically 100 to 200 shares per day, authorized by a former employee of the Company, was intended to fund employee benefits plans. All the purchases were conducted through licensed and registered broker / dealers. The Company voluntarily ceased late day trading prior to the informal inquiry by the SEC. The Company has proposed a resolution to the inquiry, and a third party agent has been engaged to facilitate future purchases of shares for employee benefits plans. The Company cannot predict the SEC's reaction, nor the timing 29 of the final resolution of the matter. Management of the Company does not believe that the final resolution of the inquiry will have a material financial impact in the future. Cautionary Statement Regarding Forward-looking Information. This 8-K Filing contains forward-looking statements based on current expectations that are covered under the "safe harbor" provision of the Securities Litigation Reform Act of 1995. These forward-looking statements are based on various assumptions, including matters outside our control. These forward-looking statements may be identified by reference to a future period, or by the use of forward-looking terminology, such as "expect", "will", "believe", "anticipate" or similar terms or variations of them. Actual results could differ materially from those set forth in forward-looking statements due to a variety of factors, including the outcome of the Company's discussions with the SEC regarding its inquiry. 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, 2002 /s/ Gregory D. Friedman _________________________ Gregory D. Friedman, CPA Executive Vice President, Chief Financial Officer and Corporate Secretary Date: August 14, 2002 /s/ Mitchell J. Fallis _________________________ Mitchell J. Fallis, CPA Vice President and Chief Accounting Officer 30 LNB Bancorp, Inc. Form 10-Q Exhibit Index Pursuant to Item 601 (a) of Regulation S-K EXHIBIT NO. PAGE DESCRIPTION 3.1 NA LNB Bancorp, Inc. Second Amended Articles of Incorporation (Incorporated by reference to the quarterly report on Form 10-Q filed on November 14, 2000.) 3.2 NA LNB Bancorp, Inc. Amended Code of Regulations. (Incorporated by reference to the current report on Form 8-K filed on January 4, 2001.) 4. NA Instruments Defining the Rights of Security Holders. (See Exhibits 3.1 and 3.2) 99.1 NA Certification pursuant to 18 U.S.C. section 1350, as enacted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. 99.2 NA Certification pursuant to 18 U.S.C. section 1350, as enacted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.