-----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, S8Lxxtn8mICBCvwsvyx3TGjFyyhukuowxjnqavXvjDDsYhZ4xC7mgT32bm2MexnX lcPODsLU8FF1c0j4TaoIXA== 0000737210-96-000013.txt : 19960515 0000737210-96-000013.hdr.sgml : 19960515 ACCESSION NUMBER: 0000737210-96-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: LNB BANCORP INC CENTRAL INDEX KEY: 0000737210 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 341406303 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13203 FILM NUMBER: 96563272 BUSINESS ADDRESS: STREET 1: 457 BROADWAY CITY: LORAIN STATE: OH ZIP: 44052-1769 BUSINESS PHONE: 2162446000 10-Q 1 1 Form 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996 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 on its charter) Ohio 34-1406303 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 457 Broadway, Lorain, Ohio 44052 - 1769 (Address of principal executive offices) (Zip Code) (216) 244 - 6000 Registrant's telephone number, including area code Not Applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such requirements for the past 90 days. YES X NO Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Outstanding at April 18, 1996: 4,124,781 shares Class of Common Stock: $1.00 par value 2 LNB Bancorp, Inc. Quarterly Report on From 10-Q Quarter Ended March 31, 1996 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 of Cash Flows 7 Notes to the Condensed Consolidated Financial 9 Statements Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Part II - Other Information Item 1 - Legal Proceedings 15 Item 2 - Changes in Securities 15 Item 3 - Defaults upon Senior Securities 15 Item 4 - Submission of matters to a Vote of Security Holders 15 Item 5 - Other Information 16 Item 6 - Exhibits and Reports on Form 8-K 16 Signatures 16 Exhibit Index 17 3 FORM 10-Q LNB BANCORP, INC. PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS MARCH 31, DECEMBER 31, CONDENSED CONSOLIDATED BALANCE SHEETS 1996 1995 ------------- -------------- (Unaudited) (See Note 1) ASSETS: Cash and due from banks $ 21,869,000 $ 27,428,000 Federal funds sold and other interest bearing instruments 3,202,000 102,000 Securities: Securities available for sale 15,650,000 15,161,000 Investment securities 87,920,000 89,405,000 -------------- -------------- Total securities 103,570,000 104,566,000 (Market value $104,382,000 and -------------- -------------- $106,076,000, respectively) Total loans 278,483,000 276,493,000 Reserve for possible loan losses (3,945,000) (4,002,000) -------------- -------------- Net loans 274,538,000 272,491,000 -------------- -------------- Premises and equipment, net 10,918,000 11,006,000 Other assets 6,430,000 6,010,000 -------------- -------------- TOTAL ASSETS $420,527,000 $421,603,000 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY: Noninterest-bearing deposits $ 58,101,000 $ 60,163,000 Interest-bearing deposits 292,945,000 293,292,000 -------------- -------------- Total deposits 351,046,000 353,455,000 -------------- -------------- Federal funds purchased and securities sold under agreements to repurchase 24,214,000 24,148,000 Other liabilities 3,734,000 3,209,000 -------------- -------------- Total liabilities 378,994,000 380,812,000 STATEMENT CONTINUED ON NEXT PAGE 4 STATEMENT CONTINUED FROM PREVIOUS PAGE Shareholders' equity: Common stock $1.00 par: Authorized 5,000,000 Outstanding 4,043,902 and 4,039,347 respectively 4,044,000 4,039,000 Additional capital 17,882,000 17,854,000 Retained earnings 19,621,000 18,856,000 Net unrealized security gains(losses) (14,000) 42,000 -------------- -------------- Total shareholders' equity 41,533,000 40,791,000 -------------- -------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $420,527,000 $421,603,000 ============== ============== Note 1: The consolidated balance sheet at December 31, 1995 has been taken from the audited Financial Statements and condensed. See notes to condensed consolidated financial statements. 5 FORM 10-Q LNB BANCORP, INC. Unaudited PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS THREE MONTHS ENDED CONDENSED CONSOLIDATED STATEMENTS MARCH 31, OF INCOME ------------------------------ 1996 1995 INTEREST INCOME: ------------------------------ Interest and fees on loans: Taxable $ 6,242,000 $ 5,877,000 Tax-exempt 16,000 20,000 Interest and dividends on securities: Taxable 1,500,000 1,305,000 Tax-exempt 73,000 99,000 Interest on Federal funds sold and other interest bearing instruments 61,000 45,000 ------------- ------------- TOTAL INTEREST INCOME 7,892,000 7,346,000 ------------- ------------- INTEREST EXPENSE: Interest on certificates of deposit of $100,000 or more 444,000 393,000 Interest on other deposits 2,196,000 2,035,000 Interest on Federal funds purchased and securities sold under agreements to repurchase 238,000 288,000 ------------- ------------- TOTAL INTEREST EXPENSE 2,878,000 2,716,000 ------------- ------------- NET INTEREST INCOME 5,014,000 4,630,000 Provision for possible loan losses 125,000 100,000 NET INTEREST INCOME AFTER PROVISION ------------- ------------- FOR POSSIBLE LOAN LOSSES 4,889,000 4,530,000 ------------- ------------- OTHER INCOME: Trust division income 278,000 239,000 Service charges on deposit accounts 484,000 375,000 Other charges fees and exchanges 423,000 462,000 Other operating income 36,000 2,000 ------------- ------------- TOTAL OTHER INCOME 1,221,000 1,078,000 STATEMENT CONTINUED ON NEXT PAGE 6 STATEMENT CONTINUED FROM PREVIOUS PAGE OTHER EXPENSES: Salaries and employee benefits 1,986,000 1,896,000 Net occupancy expense 328,000 307,000 Furniture and equipment expense 541,000 507,000 Ohio franchise tax 147,000 125,000 FDIC deposit insurance premium 1,000 186,000 Other operating expenses 1,125,000 999,000 ------------- ------------- TOTAL OTHER EXPENSES 4,128,000 4,020,000 ------------- ------------- INCOME BEFORE FEDERAL INCOME TAXES 1,982,000 1,588,000 FEDERAL INCOME TAXES 656,000 501,000 ------------- ------------- NET INCOME $ 1,326,000 $ 1,087,000 ============= ============= PER SHARE DATA: EARNINGS $ .33 $ .27 ======= ======= CASH DIVIDENDS $ .14 $ .12 ======= ======= See notes to condensed consolidated financial statements. 7 FORM 10-Q LNB BANCORP, INC. Unaudited PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS THREE MONTHS ENDED CONDENSED CONSOLIDATED STATEMENTS MARCH 31, OF CASH FLOWS ---------------------------- 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES: ---------------------------- Interest received $ 7,693,000 $ 7,036,000 Other income received 1,213,000 1,047,000 Interest paid (2,881,000) (2,504,000) Cash paid for salaries and benefits (1,848,000) (1,800,000) Net occupancy expense of premises paid (254,000) (226,000) Furniture and equipment expenses paid (195,000) (188,000) Cash paid for supplies and postage (245,000) (232,000) Cash paid for other operating expenses (1,185,000) (1,981,000) Federal income taxes paid (150,000) -0- ------------- ------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 2,148,000 1,152,000 ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Net (decrease) in securities available for sale (56,000) (46,000) Proceeds from maturities of securities available for sale 2,395,000 -0- Proceeds from maturities of investment securities 5,596,000 9,760,000 Purchase of securities available for sale (1,742,000) (425,000) Purchases of investment securities (5,297,000) (14,967,000) Net decrease in credit card loans 233,000 437,000 Net (increase) in long-term loans (2,443,000) (6,337,000) Purchases of bank premises, equipment and software (316,000) (894,000) Proceeds from sales of bank premises, and equipment -0- -0- ------------- ------------- NET CASH USED IN INVESTING ACTIVITIES (1,630,000) (12,472,000) ------------- ------------- STATEMENT CONTINUED ON NEXT PAGE 8 STATEMENT CONTINUED FROM PREVIOUS PAGE CASH FLOWS FROM FINANCING ACTIVITIES: Net (decrease) in demand and other oninterest-bearing deposits (2,062,000) (4,690,000) Net increase (decrease) in savings and passbook deposits 20,000 (9,403,000) Net increase (decrease) in time deposit (367,000) 19,465,000 Net increase in federal funds purchased and other interest bearing instruments 46,000 7,425,000 Proceeds from exercise of stock options 33,000 91,000 Dividends paid (647,000) (544,000) ------------- ------------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (2,977,000) 12,344,000 ------------- ------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,459,000) 1,024,000 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 27,530,000 21,275,000 ------------- ------------- CASH AND CASH EQUIVALENTS AT END OF QUARTER $25,071,000 $22,299,000 ============= ============= See notes to condensed consolidated financial statements. 9 FORM 10-Q LNB Bancorp, Inc. Unaudited PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INTRODUCTION The following areas of discussion pertain to the condensed consolidated financial statements of LNB Bancorp, Inc. at March 31, 1996, compared to December 31, 1995 and the results of operations for the three months ending March 31, 1996 compared to the same period in 1995. It is the intent of this discussion to provide the reader with a more thorough understanding of the condensed consolidated financial statements and supporting schedules, and should be read in conjunction with those condensed consolidated financial statements and schedules. LNB Bancorp, Inc. is not aware of any trends, events, or uncertainties that might have a material effect on the soundness of operations; neither is LNB Bancorp, Inc. aware of any proposed recommendations by regulatory authorities which would have a similar effect if implemented. BASIS OF PRESENTATION The unaudited condensed consolidated balance sheet as of March 31, 1996, the condensed consolidated statements of income and the condensed consolidated statement of cash flows for the three months ended March 31, 1996 are prepared in accordance with generally accepted accounting principles for interim financial information. The above mentioned statements reflect all normal and recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position and the results of operation for the interim periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Corporation's December 31, 1995 Annual Report to Shareholders. The results of operations for the period ended March 31, 1996 are not necessarily indicative of the operating results for the full year. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 10 RESERVE FOR POSSIBLE LOAN LOSSES Because some loans may not be repaid in full, a reserve for possible loan losses is recorded. This reserve is increased by provisions charged to earnings and is reduced by loan charge-offs, net of recoveries. Estimating the risk of loss on any loan is necessarily subjective. Accordingly, the reserve is maintained by Management at a level considered adequate to cover possible loan losses that are currently anticipated based on Management's evaluation of several key factors including information about specific borrower situations, their financial position and collateral values, current economic conditions, changes in the mix and levels of the various types of loans, past charge-off experience and other pertinent information. The reserve for possible loan losses is based on estimates using currently available information, and ultimate losses may vary from current estimates due to changes in circumstances. These estimates are reviewed periodically and, as adjustments become necessary, they are reported in earnings in the periods in which they become known. While Management may periodically allocate portions of the reserve for specific problem situations, the entire reserve is available for any charge-offs that may occur. Charge-offs are made against the reserve for possible loan losses when Management concludes that it is probable that all or a portion of a loan is uncollectible. After a loan is charged-off, collection efforts continue and future recoveries may occur. The Corporation adopted the provision of Statement of Financial Accounting Standards No. 114 (SFAS No. 114), "Accounting by Creditors for Impairment of a Loan" and SFAS No. 118 "Accounting for Creditors for Impairment of a Loan - Income Recognition and Disclosure" on January 1, 1995. SFAS No. 114 provides guidelines for measuring impairment losses on loans. Under SFAS No. 114, a loan is considered impaired, based on current information and events, if it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. The measurement of impaired loans is generally based on the present value of the expected future cash flows discounted at the loans initial effective interest rate, except that all collateral-dependent loans are measured for impairment based on the fair value of the collateral. If the loan valuation is less than the recorded value of the loan, an impairment reserve must be established for the difference. The impairment reserve is established by either an allocation of the reserve for possible loan losses or by a provision for possible loan losses, depending upon the adequacy of the reserve for possible loan losses. SFAS No. 118 permits existing income recognition practices to continue. RECLASSIFICATIONS Certain 1995 amounts have been reclassified to conform to 1996 presentation. LONG-LIVED ASSETS The Corporation adopted SFAS No. 121 "Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to be Disposed of" on January 1, 1996. This Statement establishes accounting for long-lived assets. Corporate management determined that the adoption of SFAS No. 121 did not have a significant impact on the carrying value of the long-lived assets or on net income during the first quarter 1996. 11 STOCK-BASED COMPENSATION The Corporation adopted SFAS No. 123 "Accounting for Stock-Based Compensation" on January 1, 1996. This Statement provides elective accounting for stock-based employee compensation arrangements using a fair value model. Companies currently accounting for such arrangements under APB Opinion 25 "Accounting for Stock Issued to Employees," may continue to do so. The Corporation has elected to continue to report Stock-Based compensation under APB Opinion 25. Corporate management has determined that the adoption on SFAS No. 123 will have no effect on net income for the first quarter. However, SFAS No. 123 will increase year-end disclosure requirements for stock-based compensation. 2. PER SHARE DATA Earnings per common and common equivalent shares (stock options) have been computed using the weighted-average number of shares outstanding during each period after giving consideration to the dilutive effect of incentive stock options and the five-for-four stock split which was approved by shareholders during 1995. PART I - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATION FINANCIAL CONDITION Total assets of the Corporation decreased $1,076,000 during the first quarter, to $420,527,000. This decrease in assets is attributable to decreases in demand deposits and decreases in time deposits with a related decrease in consumer debt as consumers paid off debt incurred during the Christmas season. Federal funds sold and other interest-bearing investments increased by $3,100,000 during the first quarter of 1996. The decrease in cash and due from banks of $5,559,000 is due in part to a change in the timing of deposits made and the related collection of funds on said deposits which become available to purchase federal funds. The total securities portfolio decreased $996,000 ending the first quarter at $103,570,000. At March 31, 1996 unrealized gains (losses) in the securities portfolio were approximately $1,122,000 and ($310,000), respectively. The decrease in the market value of the security portfolio is due to market interst rate fluctuations and not due to the deterioration of the credit worthiness of debt issuers. The level of nonperforming assets increased $561,000 during the first quarter 1996. The first quarter increase is the result of a net increase in nonaccrual loans plus an increase in other real estate owned. The increase in nonaccrual loans is due to decreases in nonaccrual principal balances of $374,000 which have been paid off and brought current and increases in nonaccrual principal balances of $840,000. The increase in nonaccrual loans in the first quarter of 1996 was due primarily to three commercial loan customers. Although total nonperforming assets increased, the level of nonperforming assets 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. 12 Amounts in thousands 03/31/96 12/31/95 09/30/95 06/30/95 -------- -------- -------- -------- Nonperforming Assets: Nonaccrual $1,198 $ 732 $ 356 $ 368 Restructured 0 0 0 0 Other Real Estate Owned 95 0 0 0 ------ ------ ------ ------ Total Nonperforming Assets $1,293 $ 732 $ 356 $ 368 ====== ====== ====== ====== Reserve for possible loan losses to nonperforming assets 305.1% 546.7% 1,106.2% 1,063.9% ====== ====== ====== ====== Accruing loans past due 90 days 183 0 124 127 ====== ====== ====== ====== Net loans increased $1,990,000 during the first quarter to $278,483,000 at March 31, 1996. The reserve for possible loan losses ended the quarter at $3,945,000 supported by a provision for loan losses of $125,000, recoveries of $73,000 and loan charge-offs of $255,000. The reserve for possible loan losses as a percentage of ending loans was 1.45% at December 31, 1995 and 1.42% at March 31, 1996. Corporate management believes that the reserve for possible loan losses as a percentage of ending loans at March 31, 1996 remains at an appropriate level as the ratio of the reserve for possible loan losses to nonperforming assets remains strong at 305.1% as of March 31, 1996. Corporate management believes that the current level of the reserve for possible loan losses is adequate based upon quantitative analysis of identified risks and analysis of historical trends. The Corporation's credit policies are reviewed and modified on an ongoing basis in order to remain suitable for the management of credit risk within the loan portfolio as conditions change. At March 31, 1996 there are no significant concentrations of credit in the loan portfolio. The Corporation had outstanding loan and credit commitments to make loans totaling $67,920,000 and $71,078,000 at March 31, 1996 and 1995, respectively. The decrease in outstanding loan commitments results in part from decreased loan demand in the first quarter of 1996. Mortgage and commercial construction loan demand is expected to increase in the second quarter of 1996 as seasonal weather conditions improve and the construction season begins. Total deposits decreased $2,409,000 during the first quarter to $351,046,000. Noninterest-bearing deposits decreased to $58,101,000, at March 31, 1996 for a decrease of $2,062,000, while interest-bearing deposits decreased to $292,945,000 for an decrease of $347,000. Federal funds purchased and securities sold under agreements to repurchase increased $66,000 during the first quarter of 1996. Due to the volatility of customer repurchase agreements, most funds generated by repurchase activity enter the Corporation's earning assets as short-term investments. 13 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 March 31, 1996 short-term security investments with maturities of one year or less totalled $33,650,000 which represented 32.5% of total securities. Adding cash and due from banks of $21,869,000 and Federal Funds sold of $3,100,000, total liquid assets represented 13.9% of total assets. CAPITAL RESOURCES Total shareholders' equity increased to $41,533,000, at March 31, 1996. The increase resulted primarily from $1,326,000 of net income generated from the first quarter of operations less a cash dividend payable to shareholders of $566,000. Financial Accounting Standards Board Statement No. 115, "Accounting for Certain Investments in Debt and Equity Securities", requires that securities which the Bank has classified as "Available-for-Sale" are recorded at market value with any adjustments recorded to equity. The increase in interest rates experienced in the first quarter of 1996 has caused a decrease in the market value of these securities which resulted in a reduction of shareholders' equity by $56,000 for the quarter ended March 31, 1996. The Corporation continues to monitor growth to stay within the constraints established by the regulatory authorities. Under Federal banking regulations, an institution is deemed to be well-capitalized if it has a Risk-based Tier 1 capital ratio of 6.00 percent or greater, a Risk-based Total capital ratio of 10.00 percent or greater and a Leverage ratio of 5.00 percent or greater. The Corporation's Risk-based capital and Leverage ratios have exceeded the ratios for a well-capitalized financial institution for all periods presented. The Corporation's capital and leverage ratios as of March 31, 1996 and 1995 follow. MARCH 31, -------------------- 1996 1995 ------ ------- Tier I capital ratio 16.86% 16.41% Required Tier I capital ratio 4.00% 4.00% Total capital ratio 18.11% 17.59% Required total capital ratio 8.00% 8.00% Leverage ratio 9.93% 9.56% Required leverage ratio 3.00% 3.00% On an ongoing basis the Corporation analyzes acquisition opportunities in markets which are adjacent to or within the Corporation's current geographical market. Corporate management believes that it's current capital resources are sufficient to support any foreseeable acquisition activity. 14 The Corporation has decided to let the lease lapse on June 30, 1996 for its Plaza branch which is located at 1147 Meister Road, Lorain. A new branch facility will be built next to the Corporation's nearby Oberlin Avenue Auto Bank. The Corporation expects the new facility to be opened in June of 1996 at a cost of approximately $700,000 for the building, improvements and equipment. There were no material commitments outstanding at March 31, 1996, other than the loan commitments and the contractual obligation for the new Plaza office. RESULTS OF OPERATIONS Interest and fees on loans increased $361,000 when compared to the first quarter of 1995. This was the result of the impact of increases in rates during the last three quarters of 1995 combined with loan portfolio growth. Interest and dividends on securities was $1,573,000 for the first quarter of 1996 for a increase of $169,000 over the same period in 1995. Interest and dividends on securities represented 19.9% of total interest income at March 31, 1996 compared to 19.1% at March 31, 1995. Interest on Federal funds sold and other interest bearing instruments was $61,000 at March 31, 1996 compared to $45,000 at March 31, 1995. The increase resulted from increased average balances invested in this form of financial instrument which was not offset by lower interest rates. Total interest expense increased by $162,000 when compared to the first quarter of 1995. The impact of increases in rates on certificates of deposit during the first half of 1995 plus increases in the volume of certificates of deposit, due in part to a certificate of deposit promotion, contributed to the increase in total interest expense. Also, total interest expense for the first quarter of 1996 was impacted by decreases in interest rates paid on savings accounts plus decreases in the average balance of savings accounts when compared to the first quarter of 1995. Total other income increased by $143,000 when compared to the first quarter of 1995. This increase resulted from increases in income from fiduciary fees of $39,000, increases in service charges of $109,000 and decreases in other charges of $39,000. The increase in service charges is due, in part, to reevaluating the assessment of transaction account charges. The Corporation continuously monitors noninterest expenses for greater profitability. The entire staff is geared to improving productivity at all levels. Noninterest expense for the quarter ended March 31, 1996 was $4,128,000, 2.7% above the first quarter of 1995. This increase was due primarily to increases in salaries and benefits, net occupancy, furniture and equipment expense, and postage rate increases and the impacts of inflation, less a $185,000 reduction in F.D.I.C. insurance premiums. The effective tax rate increased from 31.5% during the first quarter of 1995 to 33.1% during the first quarter of 1996. The increase in the effective rate is primarily due to changes of the proportion of nontaxable to taxable interest income. Net income was $1,326,000 and $1,087,000 for the quarters ended March 31, 1996 and 1995, respectively. Net income per share after adjusting for the five-for-four stock split in 1995 was $.32 and $.27 for the quarters ended March 31, 1996 and 1995, respectively. 15 IMPACTS OF ACCOUNTING AND REGULATORY PRONOUNCEMENTS Corporate management is not aware of any current recommendations by the Financial Accounting Standards Board or by regulatory authorities which, if they were implemented, would have a material effect on the liquidity, capital resources or operations of the Corporation. However, the potential impact of certain accounting and regulatory pronouncements warrant further discussion. Significant actions by the Federal government and its agencies, affecting the financial institutions industry in general, are currently having and will continue to have an impact on the Corporation. A discussion of these actions follows: "Omnibus Budget Reconciliation Act of 1993": Effective date of impact on the Corporation: August 10, 1993 Impact on the Corporation: Although the cost of tax compliance will increase, Corporate management does not anticipate that this tax act will have a material impact on net income. "The President's Reform Plan for the Savings and Loan Industry" and subsequent action by the FDIC: Effective date (direct impact on the Corporation): January 1, 1990 Impact on the Corporation: During 1993, a risk-related assessment system was developed by the Federal Deposit Insurance Corporation. Effective, January 1, 1993, the Bank was assigned to the lowest deposit insurance rate currently possible. Under the system, the FDIC will reevaluate the Bank's deposit insurance rate on a semi-annual basis. The FDIC approved a new rate schedule due to the fact that the Bank Insurance Fund (BIF) has reached its designated reserve ratio. The new rates became effective September 15, 1995 and are applied retroactive to June 1, 1995. The Bank was assigned the lowest deposit insurance assessment rate under the September 15, 1995 guidelines. During the first quarter of 1996, the Bank paid FDIC Insurance Premiums of $1,000 compared to the 1995 first quarter premium of $186,000. The lower 1996 FDIC Premium results from the new rate which was effective September 15, 1995. 16 Part II - OTHER INFORMATION ITEM 1 - Legal Proceedings None ITEM 2 - Changes in Securities See item 4, (c), (1) ITEM 3 - Defaults Upon Senior Securities None ITEM 4 - Submission of Matters to a Vote of Security Holders (a) LNB Bancorp Inc.'s 1996 Annual Meeting of Shareholders was held on April 16, 1996. (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 - complete descriptions of the matters voted upon is contained in Item 6, (c) (1) Election of directors to serve as Class I Directors until April 20, 1999 Annual Meeting of Shareholders as follows: ABSTAIN/ BROKER FOR AGAINST WITHELD NON-VOTES James L. Bardoner 3,708,771 19,877 311,739 Wellsley O. Gray 3,714,532 14,116 311,739 Benjamin G. Norton 3,715,289 13,359 311,739 T.L. Smith, M.D. 3,703,247 25,401 311,739 The total number of shares of LNB Bancorp, Inc. Common Stock, $1.00 par value, outstanding as of March 18, 1996, the record date of the Annual Meeting, was 4,043,902. (2) A proposed two percent (2%) common stock dividend (totaling 80,879 shares) payable to shareholders of record April 16, 1996 was approved: increasing the total number of shares outstanding to 4,124,781. The vote on Item 4, (c), (2): ABSTAIN/ BROKER FOR AGAINST WITHELD NON-VOTES 3,728,455 19,240 11,930 280,762 17 ITEM 5 - Other Information (a) The Notice of the Annual Meeting to Shareholders and Proxy Statement (dated March 18, 1996) was previously filed as Exhibit 28 to the Bancorp's 1995 Annual Report on Form 10-K. ITEM 6 - Exhibits and Reports on Form 8-K (a) Exhibit (11) - Computation of Shares Used for Earnings Per Share Calculations. (b) Exhibit (13) - First Quarter Report to shareholders of LNB Bancorp, Inc. - March 31, 1996 - EDGAR Version. (c) Exhibit (27) - Financial Data Schedule (d) Reports on Form 8-K There were no reports on Form 8-K filed for the three months ended March 31, 1996. Also, see the Exhibit Index which is found on the next page of this Form. 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: May 10, 1996 -------------------------- Gregory D. Friedman, Senior Vice President, Chief Operating Officer and Chief Financial Officer Date: May 10, 1996 -------------------------- Mitchell J. Fallis, Vice President and Chief Accounting Officer 18 LNB Bancorp, Inc. Form 10-Q Exhibit Index Pursuant to Item 601 (a) of Regulation S-K S-K Reference Exhibit Number (11) Computation of Shares Used for Earnings Per Share Calculations (12) First Quarter Report to Shareholders of LNB Bancorp, Inc. - March 31, 1996 - EDGAR Version (27) Financial Data Schedule 19 LNB Bancorp, Inc. Exhibit to Form 10-Q (For the three months ended March 31, 1996) S - K Reference Number (11) Computation of Shares Used for Earnings Per Share Calculations. Three Months Ended March 31 1996 1995 --------- --------- Weighted-Average Shares Outstanding 4,041,055 4,011,714 Common Stock Equivalents (Stock Options) 16,349 33,021 --------- --------- 4,057,404 4,044,735 ========= ========= 20 LNB Bancorp, Inc. Exhibit to Form 10 - Q (For the three months ended March 31, 1996) S - K Reference Number (13) First Quarter Report to Shareholders of LNB Bancorp, Inc. - March 31, 1996 EDGAR Version DESCRIPTION: Two sided pamphlet: Outside green cover with beige lettering. Inside contains: List of Officers of LNB Bancorp, Inc., Unaudited Consolidated Balance Sheets for period ending March 31, 1996 and March 31, 1995, respectively, unaudited EDGAR version Consolidated Statements of Income for the Three Months Ended March 31, 1996 and March 31, 1995, respectively, and the list of Directors of LNB Bancorp, Inc.. 21 Outside cover description: Green background, beige lettering. Front Cover: Quarterly Report LNB BANCORP, INC. (middle of cover) March 31, 1996 (lower middle of cover) Back Cover: (LOGO) LNB Bancorp, Inc. (lower middle of cover) 22 Officers of LNB Bancorp, Inc. Stanley G. Pijor Chairman James F. Kidd President and Chief Executive Officer Thomas P. Ryan Executive Vice President Secretary and Treasurer Willard H. DoBrunz Senior Vice President Gregory D. Friedman Senior Vice President and Chief Operating Officer Michael D. Ireland Senior Vice President Emma N. Mason Senior Vice President James H. Weber Senior Vice President 23 Consolidated Balance Sheets March 31 -------------------------- 1996 1995 ------------ ------------ ASSETS: Cash and Due from Banks $ 21,869,000 $ 20,199,000 Federal Funds Sold 3,202,000 2,100,000 Securities Available for Sale 15,650,000 10,693,000 Investment Securities 87,920,000 94,601,000 Loans 278,483,000 267,640,000 Reserve for Possible Loan Losses (3,945,000) (3,915,000) - ----------------------------------------------------------------- NET LOANS 274,538,000 263,725,000 - ----------------------------------------------------------------- Premises and Equipment (net) 10,918,000 11,112,000 Other Assets 6,430,000 5,672,000 - ----------------------------------------------------------------- TOTAL ASSETS $420,527,000 $408,102,000 - ----------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY: Non-Interest Bearing Deposits $ 58,101,000 $ 51,442,000 Interest Bearing Deposits 292,945,000 288,185,000 - ----------------------------------------------------------------- TOTAL DEPOSITS 351,046,000 339,627,000 - ----------------------------------------------------------------- Securities Sold under Repurchase Agreements 24,214,000 26,596,000 Other Liabilities 3,734,000 3,586,000 - ----------------------------------------------------------------- TOTAL LIABILITIES 378,994,000 369,809,000 - ----------------------------------------------------------------- Common stock 4,044,000 3,211,000 Additional capital 17,882,000 18,495,000 Retained Earnings 19,621,000 16,634,000 Net Unrealized Security Losses (14,000) (47,000) - ----------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 41,533,000 38,293,000 - ----------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $420,527,000 $408,102,000 - ----------------------------------------------------------------- (LOGO) LNB Bancorp, Inc. 24 Consolidated Statements of Income Three Months Ended March 31 ------------------------ 1996 1995 ------------ ----------- INTEREST INCOME: Interest and Fees on Loans $6,258,000 $5,897,000 Interest and Dividends on Securities: 1,575,000 1,404,000 Interest on Federal Funds Sold 59,000 45,000 - ---------------------------------------------------------------- TOTAL INTEREST INCOME 7,892,000 7,346,000 - ---------------------------------------------------------------- INTEREST EXPENSE: Interest Deposits 2,640,000 2,428,000 Interest on Federal Funds Purchased and Securities Sold under Repurchase Agreements 238,000 288,000 - ---------------------------------------------------------------- TOTAL INTEREST EXPENSE 2,878,000 2,716,000 - ---------------------------------------------------------------- NET INTEREST INCOME 5,014,000 4,630,000 Provision for Loan Losses 125,000 100,000 - ---------------------------------------------------------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,889,000 4,530,000 - ---------------------------------------------------------------- OTHER INCOME: Trust Department Income 278,000 239,000 Fees and Service Charges 908,000 837,000 Gains from Sales of Loans and Securities -0- -0- Other Operating Income 35,000 2,000 - ---------------------------------------------------------------- TOTAL OTHER INCOME 1,221,000 1,078,000 - ---------------------------------------------------------------- OTHER EXPENSES: Salaries and Employee Benefits 1,986,000 1,896,000 Net Occupancy Expense of Premises 328,000 307,000 Furniture and Equipment Expenses 541,000 507,000 FDIC Deposit Insurance Premium 1,000 186,000 Ohio Franchise Tax 147,000 125,000 Other Operating Expenses 1,125,000 999,000 - ---------------------------------------------------------------- TOTAL OTHER EXPENSES 4,128,000 4,020,000 - ---------------------------------------------------------------- INCOME BEFORE FEDERAL INCOME TAXES 1,982,000 1,588,000 Federal Income Taxes 656,000 501,000 - ---------------------------------------------------------------- NET INCOME $1,326,000 $1,087,000 - ---------------------------------------------------------------- PER SHARE DATA: NET INCOME $ .33 $ .27 - ---------------------------------------------------------------- DIVIDENDS DECLARED $ .14 $ .12 ================================================================ The per share data has been adjusted to reflect the five-for-four stock split in 1995. Net income per share is based on weighted average common and common equivalent shares outstanding. 25 Two column format Directors of LNB Bancorp, Inc. Directors James L. Bardoner Thomas P. Ryan Retired, Former President Executive Vice President Dorn Industries, Inc. and Secretary/Treasurer LNB Bancorp, Inc. Daniel P. Batista Executive Vice President Attorney/Partner and Secretary Cook & Batista Co., L.P.A. Lorain National Bank Robert M. Campana Don A. Sanborn Managing Director Retired P.C. Campana, Inc. Wellsley O. Gray T.L. Smith, M.D. Sales Consultant Retired Physician Smith Dairy Company James F. Kidd Eugene M. Sofranko President & Chief Executive Officer President and LNB Bancorp, Inc. and Chief Executive Officer Lorain National Bank Lorain Glass Company, Inc. David M. Koethe Paul T. Stack Chairman of the Board Manufacturer's Representative The Lorain Printing Company Coley's Inc. and A-1 Welding and Fabricating, Inc. Benjamin G. Norton Employee and Community Leo Weingarten Relations Manager Retired RELTEC Corporation Lorain Products Stanley G. Pijor Directors Emeritus Chairman Lorain National Bank LNB Bancorp, Inc. and Lorain National Bank James H. Riddell Chairman of the Board Jeffrey F. Riddell Consumers Builders Supply Co. President President, Consumeracq, Inc. Consumers Builders Supply Co. Vice President and Chief Executive Officer, Consumeracq, Inc. 26 LNB Bancorp, Inc. Exhibit to Form 10 - Q (For the three months ended March 31, 1996) S - K Reference Number (27) Financial Data Schedule 27 EX-27 2
9 0000737210 LNB BANCORP, INC. 1,000 U.S. 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 1 21,869 292,945 3,202 0 15,650 87,920 88,730 278,483 (3,945) 420,527 351,046 24,214 3,104 0 0 0 4,044 37,489 420,527 6,258 1,575 59 7,892 2,640 2,878 5,014 125 0 4,128 1,982 1,326 0 0 1,326 .33 .33 4.83 1,198 183 0 842 4,002 255 73 3,945 2,721 0 1,224
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