-----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, MpoOnjjjUqDnBVuCyBYfV7pwC0vofZ8+7gna/ytPptVmAl10ZWwrBx+RhNi8dsBu U2HplgyiBykTYYToijgBIA== 0000737210-96-000022.txt : 19961118 0000737210-96-000022.hdr.sgml : 19961118 ACCESSION NUMBER: 0000737210-96-000022 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 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: 96665106 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 September 30, 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 in its charter) Ohio 34-1406303 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 457 Broadway, Lorain, Ohio 44052 - 1769 (Address of principal executive offices) (Zip Code) (216) 244 - 6000 Registrant's telephone number, including area code Not Applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such requirements for the past 90 days. YES X NO Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Outstanding at November 10, 1996: 4,135,606 shares Class of Common Stock: $1.00 par value 2 LNB Bancorp, Inc. Quarterly Report on Form 10-Q Quarter Ended September 30, 1996 Part I - Financial Information Item 1 - Financial Statements Interim financial information required by Regulation 210.01-01 of Regulation S-X is included in this Form 10-Q as referenced below: Page Number(s) Condensed Consolidated Balance Sheets 3 Condensed Consolidated Statements of Income 5 Condensed Consolidated Statements 9 of Cash Flows Notes to the Condensed Consolidated Financial Statements 11 Item 2 - Management's Discussion and Analysis 14 of Financial Condition and Results of Operations Part II - Other Information Item 1 - Legal Proceedings 18 Item 2 - Changes in Securities 18 Item 3 - Defaults upon Senior Securities 18 Item 4 - Submission of matters to a Vote of 18 Security Holders Item 5 - Other Information 18 Item 6 - Exhibit and Reports on Form 8-K 18 Signatures 18 Exhibit Index 19 3 FORM 10-Q LNB BANCORP, INC. PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS SEPTEMBER 30, DECEMBER 31, CONDENSED CONSOLIDATED BALANCE SHEETS 1996 1995 ------------- ------------- (Unaudited) (See Note 1) ASSETS: Cash and due from banks $ 19,404,000 $ 27,428,000 Federal funds sold and other interest bearing instruments 102,000 102,000 Securities: Securities available for sale 14,244,000 15,161,000 Investment securities 89,725,000 89,405,000 ------------- ------------- Total Securities 103,969,000 104,566,000 (Market Value $103,918,000 and ------------- ------------- $103,155,000 respectively) Total loans 297,080,000 276,493,000 Reserve for possible loan losses (4,112,000) (4,002,000) ------------- ------------- Net loans 292,968,000 272,491,000 ------------- ------------- Premises and equipment, net 10,863,000 11,006,000 Other assets 6,281,000 6,010,000 ------------- ------------- TOTAL ASSETS $433,587,000 $421,603,000 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY: Noninterest-bearing deposits $ 63,175,000 $ 60,163,000 Interest-bearing deposits 297,289,000 293,292,000 ------------- ------------- Total deposits 360,464,000 353,455,000 ------------- ------------- Federal funds purchased and securities sold under agreements to repurchase 26,203,000 24,148,000 Federal Home Loan Bank Advances 360,000 -0- Other liabilities 3,242,000 3,209,000 ------------- ------------- Total Liabilities 390,269,000 380,812,000 STATEMENT CONTINUED ON NEXT PAGE ------------- ------------- 4 STATEMENT CONTINUED FROM PREVIOUS PAGE Shareholders' equity: Common stock $1.00 par: Authorized 5,000,000 Outstanding 4,135,606 and 4,036,248, respectively 4,135,000 4,039,000 Additional capital 20,129,000 17,854,000 Retained earnings 19,087,000 18,856,000 Net unrealized security gains(losses) (33,000) 42,000 ------------- ------------- Total Shareholders' Equity 43,318,000 40,791,000 ------------- ------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $433,587,000 $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 1 - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS NINE MONTHS ENDED CONDENSED CONSOLIDATED STATEMENTS SEPTEMBER 30, OF INCOME -------------------------- 1996 1995 INTEREST INCOME: ------------ ------------ Interest and Fees on Loans: Taxable $19,136,000 $18,395,000 Tax-Exempt 46,000 57,000 Interest and Dividends on Securities: Taxable 4,578,000 4,073,000 Tax-Exempt 184,000 339,000 Interest on Federal funds sold and other interest bearing instruments 167,000 171,000 ------------ ----------- TOTAL INTEREST INCOME 24,111,000 23,035,000 ------------ ----------- INTEREST EXPENSE: Interest on Certificates of Deposit of $100,000 or more 1,404,000 1,336,000 Interest on Other Deposits 6,437,000 6,455,000 Interest on Federal funds purchases and securities sold under agreements to repurchase 690,000 848,000 Other Interest 7,000 1,000 ------------ ----------- TOTAL INTEREST EXPENSE 8,538,000 8,640,000 ------------ ----------- NET INTEREST INCOME 15,573,000 14,395,000 Provision for Possible Loan Losses 425,000 300,000 NET INTEREST INCOME AFTER PROVISION ------------ ----------- FOR POSSIBLE LOAN LOSSES 15,148,000 14,095,000 ------------ ----------- OTHER INCOME: Trust Division income 801,000 756,000 Service charges on deposit accounts 1,546,000 1,008,000 Other Charges Fees and Exchanges 1,291,000 1,399,000 Gains from Sales of Loans -0- 9,000 Other operating income 64,000 -0- ------------ ----------- TOTAL OTHER INCOME 3,702,000 3,172,000 STATEMENT CONTINUED ON NEXT PAGE ------------ ----------- 6 STATEMENT CONTINUED FROM PREVIOUS PAGE OTHER EXPENSES: Salaries and employee benefits 6,059,000 5,937,000 Net occupancy expense 939,000 914,000 Furniture and Equipment Expense 1,630,000 1,499,000 FDIC deposit insurance premium 1,000 351,000 Ohio Franchise Tax 427,000 387,000 Other operating expenses 3,397,000 2,959,000 ----------- ----------- TOTAL OTHER EXPENSES 12,453,000 12,047,000 ----------- ----------- INCOME BEFORE FEDERAL INCOME TAXES 6,397,000 5,220,000 FEDERAL INCOME TAXES 2,117,000 1,646,000 ----------- ----------- NET INCOME $ 4,280,000 $ 3,574,000 =========== =========== PER SHARE DATA: EARNINGS $ 1.03 $ .87 ====== ====== CASH DIVIDENDS $ .44 $ .37 ====== ====== 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 SEPTEMBER 30, OF INCOME -------------------------- 1996 1995 INTEREST INCOME ------------ ------------ Interest and Fees on Loans: Taxable $ 6,521,000 $ 6,318,000 Tax-Exempt 15,000 18,000 Interest and Dividends on Securities: Taxable 1,553,000 1,391,000 Tax-Exempt 49,000 122,000 Interest on Federal funds sold and other interest bearing instruments 49,000 51,000 ------------ ----------- TOTAL INTEREST INCOME 8,187,000 7,900,000 ------------ ----------- INTEREST EXPENSE: Interest on certificates of deposit of $100,000 or more 507,000 514,000 Interest on other deposits 2,137,000 2,194,000 Interest on Federal funds purchased and securities sold under agreements to repurchase 240,000 224,000 Other interest 6,000 -0- ------------ ----------- TOTAL INTEREST EXPENSE 2,890,000 2,932,000 ------------ ----------- NET INTEREST INCOME 5,297,000 4,968,000 Provision for possible loan losses 125,000 100,000 NET INTEREST INCOME AFTER PROVISION ------------ ----------- FOR POSSIBLE LOAN LOSSES 5,172,000 4,868,000 ------------ ----------- OTHER INCOME: Trust division income 265,000 279,000 Service charges on deposit accounts 536,000 250,000 Other charges fees and exchanges 439,000 555,000 Gains from sales of loans -0- -0- Other operating income 14,000 5,000 ------------ ----------- TOTAL OTHER INCOME 1,254,000 1,089,000 STATEMENT CONTINUED ON NEXT PAGE ------------ ----------- 8 STATEMENT CONTINUED FROM PREVIOUS PAGE OTHER EXPENSES: Salaries and employee benefits 2,049,000 2,173,000 Net occupancy expense 300,000 310,000 Furniture and equipment expense 552,000 498,000 Ohio Franchise Tax 137,000 139,000 Other operating expenses 1,114,000 937,000 ----------- ----------- TOTAL OTHER EXPENSES 4,152,000 4,057,000 ----------- ----------- INCOME BEFORE FEDERAL INCOME TAXES 2,274,000 1,900,000 FEDERAL INCOME TAXES 771,000 591,000 ----------- ----------- NET INCOME $ 1,503,000 $ 1,309,000 =========== =========== PER SHARE DATA: EARNINGS $ .36 $ .32 ====== ====== CASH DIVIDENDS $ .14 $ .14 ====== ====== See Notes to Condensed Consolidated Financial Statements. 9 FORM 10-Q LNB BANCORP, INC. Unaudited PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS NINE MONTHS ENDED CONDENSED CONSOLIDATED STATEMENTS SEPTEMBER 30, OF CASH FLOWS ------------------------- 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES: ------------ ------------ Interest received $23,953,000 $22,142,000 Other income received 3,760,000 3,188,000 Interest paid (8,589,000) (8,315,000) Cash paid for salaries and benefits (5,733,000) (5,981,000) Net occupancy expense of premises paid (720,000) (679,000) Furniture and equipment expenses paid (579,000) (704,000) Cash paid for supplies and postage (716,000) (676,000) Cash paid for other operating expenses (3,362,000) (2,643,000) Federal income taxes paid (2,060,000) (1,480,000) ------------ ------------ NET CASH PROVIDED BY OPERATING ACTIVITIES: 5,954,000 4,852,000 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities of securities available for sale 9,667,000 2,912,000 Proceeds from maturities of investment securities 18,971,000 24,313,000 Purchase of securities available for sale (10,446,000) (3,943,000) Purchase of investment securities (17,725,000) (25,870,000) Net (increase) in long-term loans (21,297,000) (15,737,000) Net decrease in credit card loans 200,000 154,000 Purchases of bank premises, equipment and software (1,094,000) (1,568,000) Proceeds from sales of bank premises, and equipment 5,000 -0- ------------ ------------ NET CASH USED IN INVESTING ACTIVITIES (21,719,000) (19,739,000) ------------ ------------ STATEMENT CONTINUED ON NEXT PAGE 10 STATEMENT CONTINUED FROM PREVIOUS PAGE CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in demand and other non-interest bearing deposits 3,012,000 2,628,000 Net (decrease) in savings and passbook deposits (4,874,000) (15,518,000) Net increase in time deposits 8,871,000 25,737,000 Net increase in federal funds purchased and other interest bearing instruments 2,035,000 2,755,000 Proceeds from Federal Home Loan Bank 360,000 -0- Proceeds from exercise of stock options 127,000 257,000 Dividends paid (1,790,000) (1,507,000) ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 7,741,000 14,352,000 ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (8,024,000) (535,000) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 27,530,000 21,275,000 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF QUARTER $19,506,000 $20,740,000 ============ ============ See Notes to Condensed Consolidated Financial Statements. 11 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 September 30, 1996, compared to December 31, 1995, and the results of operations for the nine months ending September 30, 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 September 30, 1996, the condensed consolidated statements of income and the condensed consolidated statements of cash flows for the nine months ended September 30, 1996 and 1995 are prepared in accordance with generally accepted accounting principles for interim financial information. The above mentioned statements reflect all normal and recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position and the results of operations for the interim periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Corporation's December 31, 1995 Annual Report to Shareholders. The results of operations for the period ended September 30, 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. 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 12 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 nine months ended September 30, 1996. 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. In accordance with SFAS No. 123, the Corporation has elected to continue to report Stock-Based compensation under APB Opinion 25. Under APB Opinion 25, if the option is fixed and the exercise price of the underlying stock equals the market price on the date of grant, no compensation expense is recognized. Corporate management has determined that the adoption on SFAS No. 123 will have no effect on the Corporation's financial condition or results of operations. However, SFAS No. 123 will increase year-end disclosure requirements for stock-based compensation. 13 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, a two percent stock dividend and a five-for-four stock split which were approved by shareholders during 1996 and 1995, respectively. 14 PART I - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATION FINANCIAL CONDITION Total assets of the Corporation increased $11,984,000 during the first nine months, to $433,587,000. A portion of this growth is attributable to the cyclical influx of municipal county tax money. Federal funds sold and other interest bearing investments remained at $102,000 during the first nine months of 1995. Total securities decreased $597,000 ending the third quarter at $103,969,000. At September 30, 1996 unrealized gains (losses)in the investment securities portfolio were approximately $524,000 and ($575,000), respectively. Nonperforming assets at September 30, 1996 totaled $980,000, up from $108,000 at June 30, 1996. The third quarter increase in nonperforming assets of $872,000 resulted from loans being brought current in the amount of $53,000, loans charged-off in the amount of $4,000, reductions of other real estate owned of $0,000 and increases in nonaccrual loans of $929,000. The increase in nonaccrual loans in the third quarter of 1996 was due primarily to two commercial loan customers. The level of nonperforming assets at September 30, 1996 remains at relatively low levels and Corporate management believes nonperforming assets are well collateralized. The table below presents the level of nonperforming assets at the end of the last four calendar quarters. Amounts in thousands 09/30/96 06/30/96 03/31/96 12/31/95 -------- -------- -------- -------- Nonperforming Assets: Nonaccrual $ 941 $ 69 $1,198 $ 732 Restructured 0 0 0 0 Other Real Estate Owned 39 39 95 0 ------ ------ ------ ------ Total Nonperforming Assets $ 980 $ 108 $1,293 $ 732 ====== ====== ====== ====== Reserve for possible loan losses to total nonperforming assets 419.6% 3,699.07% 305.1% 546.7% ======== ====== ====== ======= Accruing loans past due 90 days 396 243 183 0 ====== ====== ====== ====== Net loans increased $20,477,000 during the first nine months to $292,968,000 at September 30, 1996. The reserve for possible loan losses ended the quarter at $4,112,000 supported by a provision for loan losses of $425,000, recoveries of $164,000 and loan charge-offs of $479,000. The reserve for possible loan losses as a percentage of ending loans decreased .02% from 1.40% at December 31, 1995 to 1.38% at September 30, 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 on-going basis in order to remain suitable for the management of credit risk within the loan portfolio as conditions change. At September 30, 1996, there are no significant concentrations of credit in the loan portfolio. 15 The Corporation had outstanding loan and credit commitments to make loans totalling $62,933,000 and $61,718,000 at September 30, 1996 and 1995, respectively. The consistent outstanding loan and credit commitments balance from 1995 to 1996 results from loan demand due to good local economic conditions. Total deposits increased $7,009,000 during the first nine months to $360,464,000. Non-interest bearing deposits increased to $63,175,000, at September 30,1996 for an increase of $3,012,000, while interest bearing deposits climbed to $297,289,000 for an increase of $3,997,000. Federal funds purchased and securities sold under agreements to repurchase increased $4,277,000 during the first nine months 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. 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 investments securities and portfolio loans. Securities and loans available for sale provide another source of liquidity through the cash flows of these interest bearing assets as they mature or are sold. The Corporation continues to maintain a relatively high liquid position in order to take advantage of interest rate fluctuations. As of September 30, 1996, short-term security investments with maturities of one year or less totalled $24,427,000 which represented 23.5% of total securities. Adding cash and due from banks of $19,404,000, total liquid assets represented 10.1% of total assets. The Corporation's subsidiary bank has established short-term lines of credit at correspondent banks and the Federal Home Loan Bank which exceed $15,000,000. CAPITAL RESOURCES Total shareholders' equity increased to $43,318,000, at September 30, 1996. The increase resulted primarily from $4,280,000 of net income generated from the first nine months of operations less a cash dividend payable to shareholders of $1,805,000. 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 three quarters of 1996 has caused a decrease in the market value of these securities which resulted in a reduction of shareholders' equity of $75,000 for the nine months ended September 30, 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. 16 The Corporation's capital and leverage ratios as of September 30, 1996 and 1995 follow. September 30 ----------------- 1996 1995 ------ ------ Tier I capital ratio 16.71% 17.02% Required Tier I capital ratio 4.00% 4.00% Total capital ratio 17.96% 18.27% Required total capital ratio 8.00% 8.00% Leverage ratio 10.26% 9.90% 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. The Corporation has filed an application with the Comptroller of Currency to secure approval for a branch office in Westlake. There were no material commitments outstanding at September 30, 1996, other than the loan and credit commitments. RESULTS OF OPERATIONS Interest and fees on loans increased by $730,000 when compared to the first nine months of 1995. This was the net result of the impact of slight increases in rates in conjunction with loan portfolio growth of $20,587,000. Interest and dividends on securities was $4,762,000 for the first nine months of 1996 for an increase of $319,000 over the same period in 1995. Interest and dividends on securities represented 19.8% of total interest income at September 30, 1996 compared to 19.1% at September 30, 1995. Interest on Federal funds sold and other interest bearing instruments was $162,000 at September 30, 1996 compared to $171,000 at September 30, 1995. The decrease resulted from declining average balances invested in this form of financial instrument along with lower interest rates. Total interest expense decreased by $102,000 when compared to the first nine months of 1995. The decrease resulted from increases in average balances of certificates of deposit and checkinvest accounts coupled with decreases in interest rates paid on certificates of deposit and checkinvest accounts. Total other income increased by $530,000 when compared to the first nine months of 1995. This increase resulted from increases in income from fiduciary fees of $45,000, increases in service charges of $399,000 and increases in other charges of $43,000. The increase in service charges is due, in part, to reevaluating the assessment of transaction account charges. The increase in other charges is the result of pricing increases in credit card and merchant fees. Other income increased by $64,000 and gains from sales of loans decreased by $9,000 respectively. The Corporation continuously monitors non-interest expenses for greater profitability. The entire staff is geared to improving productivity at all levels. Non-interest expense for the nine months ended September 30, 1996 was $12,453,000, 3.4% above the first nine months of 1995. This increase was due primarily to increases in salaries and employee benefits, net occupancy expense, furniture and equipment expense, and the impacts of inflation. The effective tax rate increased from 31.5% during the first nine months of 1995 to 33.1% during the first nine months of 1996. The increase in the effective 17 tax rate is due primarily to the decrease in tax exempt interest income. Net income was $4,280,000 and $3,574,000 for the nine months ended September 30, 1996 and 1995, respectively. Net income per share after adjusting for the two percent stock dividend in 1996 and the five-for-four stock split in 1995 was $1.03 and $.87 for the nine months ended September 1996 and 1995, respectively. IMPACTS OF ACCOUNTING AND REGULATORY PRONOUNCEMENTS Corporate management is not aware of any current recommendations by the Financial Accounting Standards Board or by regulatory authorities which, if they were implemented, would have a material effect on the liquidity, capital resources or operations of the Corporation. However, the potential impact of certain accounting and regulatory pronouncements warrant further discussion. 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 nine months ended September 30, 1996, the Bank paid FDIC Deposit Insurance Premiums of $1,000 compared to $351,000 for the same period in 1995. The lower 1996 FDIC Premium results from the new rate which was effective September 15, 1995. 18 Part II - OTHER INFORMATION ITEM 1 - Legal Proceedings None ITEM 2 - Changes in Securities None ITEM 3 - Defaults Upon Senior Securities None ITEM 4 - Submission of Matters to a Vote of Security Holders None ITEM 5 - Other Information None ITEM 6 - Exhibits and Reports on Form 8-K: (a) Exhibit (11) - Computation of Shares Used for Earnings Per Share Calculation. (b) Exhibit (19) - Third Quarter Report to Shareholders of LNB Bancorp, Inc., September 30, 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 nine months ended September 30, 1996. Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LNB BANCORP, INC. (registrant) Date: November 10, 1996 /s/ Gregory D. Friedman _________________________ Gregory D. Friedman, Senior Vice President, Chief Operating Officer and Chief Financial Officer Date: November 10, 1996 /s/ Mitchell J. Fallis _________________________ Mitchell J. Fallis, Vice President and Chief Accounting Officer 19 LNB Bancorp, Inc. Form 10-Q Exhibit Index Pursuant to Item 601 (a) of Regulation S-K S-K Reference Exhibit Page Number Number (11) Computation of Shares Used for Earnings Per Share Calculations 20 (19) Third Quarter Report to Shareholders of LNB Bancorp, Inc. September 30, 1996 - EDGAR Version. 21 (27) Financial Data Schedule. 27 20 LNB Bancorp, Inc. Exhibit to Form 10-Q (For the nine months ended September 30, 1996) S - K Reference Number (11) Computation of Shares Used for Earnings Per Share Calculation. Nine Months Ended September 30 -------------------- 1996 1995 --------- --------- Weighted Average Shares Outstanding 4,125,664 4,096,431 Common Stock Equivalents (Stock Options) 10,590 19,168 --------- --------- 4,136,254 4,115,599 ========= ========= 21 LNB Bancorp, Inc. Exhibit to Form 10 - Q (For the nine months ended September 30, 1996) S - K Reference Number (19) Third Quarter Report to Shareholders of LNB Bancorp, Inc. (dated September 30, 1996) EDGAR Version DESCRIPTION: Two sided pamphlet: Backside cover containing the list of Customer Service Locations of Lorain National Bank and outside green cover with beige lettering stating LNB Bancorp, Inc., Quarterly Report, September 30, 1996 along with logo. Inside contains: Unaudited Consolidated Balance Sheets for period ending September 30, 1996 and September 30, 1995, respectively and unaudited Consolidated Statements of Income for the Nine Months Ended September 30, 1996 and September 30, 1995, respectively. 22 Consolidated Balance Sheets September 30 ------------------------------ 1996 1995 -------------- -------------- ASSETS: Cash and Due from Banks $ 19,404,000 $ 20,040,000 Federal Funds Sold and Other Interest Bearing Instruments 102,000 700,000 Securities Available for Sale 14,244,000 10,326,000 Investment Securities 89,725,000 91,946,000 Loans 297,080,000 277,056,000 Reserve for Possible Loan Losses (4,112,000) (3,938,000) - ------------------------------------------------------------------------------- NET LOANS 292,968,000 273,118,000 ------------------------------------------------------------------------------ Premises and Equipment (net) 10,863,000 10,856,000 Other Assets 6,281,000 6,493,000 - ------------------------------------------------------------------------------ TOTAL ASSETS $433,587,000 $413,479,000 - ------------------------------------------------------------------------------ LIABILITIES AND STOCKHOLDERS' EQUITY: Non-Interest Bearing Deposits $ 63,175,000 $ 59,724,000 Interest Bearing Deposits 297,289,000 288,342,000 - ------------------------------------------------------------------------------ TOTAL DEPOSITS 360,464,000 348,066,000 - ------------------------------------------------------------------------------ Federal Funds Purchased -0- -0- Securities Sold under Repurchase Agreements 26,203,000 21,926,000 Other Liabilities 3,602,000 3,517,000 - ------------------------------------------------------------------------------ TOTAL LIABILITIES 390,269,000 373,509,000 - ------------------------------------------------------------------------------ Common Stock 4,135,000 4,036,000 Additional Capital 20,129,000 17,836,000 Retained Earnings 19,087,000 18,074,000 Net Unrealized Security Gains(Losses) (33,000) 24,000 - ------------------------------------------------------------------------------ TOTAL SHAREHOLDERS' EQUITY 43,318,000 39,970,000 - ------------------------------------------------------------------------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $433,587,000 $413,479,000 - ------------------------------------------------------------------------------ (LOGO) LNB Bancorp, Inc. and its subsidiary Lorain National Bank 23 Consolidated Statements of Income Nine Months Ended September 30 ---------------------------- 1996 1995 ------------- ------------- INTEREST INCOME: Interest and Fees on Loans $19,182,000 $18,452,000 Interest and Dividends on Securities 4,767,000 4,412,000 Interest on Federal Funds Sold 162,000 171,000 - -------------------------------------------------------------------------------- TOTAL INTEREST INCOME 24,111,000 23,035,000 - ------------------------------------------------------------------------------- INTEREST EXPENSE: Interest Deposits 7,841,000 7,791,000 Interest on Securities Sold Under Repurchase Agreements 690,000 848,000 Other Interest Expense 7,000 1,000 - -------------------------------------------------------------------------------- TOTAL INTEREST EXPENSE 8,538,000 8,640,000 - ------------------------------------------------------------------------------- NET INTEREST INCOME 15,573,000 14,395,000 Provision for Loan Losses 425,000 300,000 - ------------------------------------------------------------------------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 15,148,000 14,095,000 - -------------------------------------------------------------------------------- OTHER INCOME: Trust Department Income 801,000 756,000 Fees and Service Charges 2,836,000 2,407,000 Gains From Sales of Loans and Securities -0- -0- Other Operating Income 65,000 9,000 - -------------------------------------------------------------------------------- TOTAL OTHER INCOME 3,702,000 3,172,000 - -------------------------------------------------------------------------------- OTHER EXPENSES: Salaries and Employee Benefits 6,059,000 5,937,000 Net Occupancy Expense 939,000 914,000 Furniture and Equipment Expenses 1,630,000 1,499,000 FDIC Deposit Insurance Premium 1,000 351,000 Ohio Franchise Tax 427,000 387,000 Other Operating Expenses 3,397,000 2,959,000 - -------------------------------------------------------------------------------- TOTAL OTHER EXPENSES 12,453,000 12,047,000 - -------------------------------------------------------------------------------- INCOME BEFORE FEDERAL INCOME TAXES 6,397,000 5,220,000 Federal Income Taxes 2,117,000 1,646,000 - ------------------------------------------------------------------------------- NET INCOME $4,280,000 $3,574,000 - ------------------------------------------------------------------------------- PER SHARE DATA: NET INCOME $ 1.03 $ .87 - ------------------------------------------------------------------------------- DIVIDENDS DECLARED $ .44 $ .37 =============================================================================== The per share data has been adjusted to reflect the 2% stock dividend in 1996 and the 5-for-4 stock split in 1995. Net income per share is based on weighted average common and common equivalent shares outstanding. 24 Outside Cover: 2 column format Customer Service Locations Bank Offices Second Street Office 221 Second Street Amherst Office Elyria, Ohio 1175 Cleveland Avenue (216) 323-4621 Amherst, Ohio (216) 988-4423 Vermilion Office 4455 Liberty Avenue Avon Lake Office Vermilion, Ohio 240 Miller Road (216) 967-3124 Avon Lake, Ohio (216) 933-2186 The Crossing of Westlake Office 30210 Detroit Road Cleveland Street Office Westlake, Ohio 801 Cleveland Street (216) 892-9696 Elyria, Ohio (216) 365-8397 West Park Drive Office 2130 West Park Drive Kansas Avenue Office Lorain, Ohio 1604 Kansas Avenue (216) 989-3131 Lorain, Ohio (216) 288-9151 Community-Based Automated Teller Machine Locations Lake Avenue Office 42935 E. North Ridge Road Convenient Food Mart Elyria, Ohio Cash Machine (216) 233-7196 5375 West Erie Avenue Lorain, Ohio Main Office* 457 Broadway Lakeland Medical Center Lorain, Ohio 3700 Kolbe Road (216) 244-7185 Lorain, Ohio Sixth Street Drive-In Lorain Community/St. Joseph 200 Sixth Street Regional Health Center Lorain, Ohio 205 W. 20th Street (216) 244-7242 Lorain, Ohio Oberlin Office Lorain County Community College 40 East College Street 1005 N. Abbe Road Oberlin, Ohio Elyria, Ohio (216) 775-1361 Lorain Plaza Kendal at Oberlin Office 1147 Meister Road 600 Kendal Drive Lorain, Ohio Oberlin, Ohio (216) 774-5400 Lowe's Home Improvement Warehouse Olmsted Office 620 Midway Boulevard 27095 Bagley Road Elyria, Ohio Olmsted Twp., Ohio (216) 235-4600 Midway Mall Food Court 3343 Midway Mall Pearl Avenue Office Elyria, Ohio 2850 Pearl Avenue Lorain, Ohio Route 60 and Sailorway Drive (216) 277-1103 1317 State Route 60 Vermilion, Ohio 25 Oberlin Avenue Office *Drive-up ATM is available at 3660 Oberlin Avenue Sixth Street Drive-In. All other Lorain, Ohio offices feature ATMs. (216) 282-9196 Frontside cover description: Green background, beige lettering. (Logo) LNB Bancorp, Inc. and its subsidiary Lorain National Bank (bottom middle of outside cover) QUARTERLY REPORT (middle right side of frontside cover) LNB Bancorp, INC. (middle right side of frontside cover) September 30, 1996 (bottom right side of frontside cover) 26 LNB Bancorp, Inc. Exhibit to Form 10 - Q (For the nine months ended September 30, 1996) S - K Reference Number (27) Financial Data Schedule (Follows as a separate document) EX-27 2
9 0000737210 LNB BANCORP, INC. 1,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 19,404 297,289 0 0 14,244 89,725 89,674 297,080 4,112 433,587 360,464 26,203 3,602 0 4,135 0 0 39,183 433,587 19,182 4,762 167 24,111 7,841 8,538 15,573 425 0 12,453 6,397 4,280 0 0 4,280 1.03 1.03 5.31 941 396 0 923 4,002 479 164 4,112 2,863 0 1,249
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