-----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, Ll4ARRkkYkQuCrE0yPhsXkVNUk8+cwAlJQQRKDBgHFPtu3C50heKoKw3i9sXPADp PNmH9Q8eCzyjlTzbHEWxDg== 0000737210-97-000013.txt : 19970514 0000737210-97-000013.hdr.sgml : 19970514 ACCESSION NUMBER: 0000737210-97-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970513 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: 97601936 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, 1997 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 15, 1997: 4,222,275 shares Class of Common Stock: $1.00 par value 2 LNB Bancorp, Inc. Quarterly Report on From 10-Q Quarter Ended March 31, 1997 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 16 Item 2 - Changes in Securities 16 Item 3 - Defaults upon Senior Securities 16 Item 4 - Submission of matters to a Vote of Security Holders 16 Item 5 - Other Information 17 Item 6 - Exhibits and Reports on Form 8-K 17 Signatures 17 Exhibit Index 18 3 FORM 10-Q LNB BANCORP, INC. PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS MARCH 31, DECEMBER 31, CONDENSED CONSOLIDATED BALANCE SHEETS 1997 1996 ------------- -------------- (Unaudited) (See Note 1) ASSETS: Cash and due from banks $ 19,369,000 $ 18,890,000 Federal funds sold and other interest bearing instruments 2,505,000 103,000 Securities: Securities available for sale 16,077,000 16,102,000 Investment securities 89,158,000 88,858,000 -------------- -------------- Total securities 105,235,000 104,960,000 (Market value $104,382,000 and -------------- -------------- $106,076,000, respectively) Total loans 305,786,000 302,073,000 Reserve for possible loan losses (4,089,000) (4,116,000) -------------- -------------- Net loans 301,697,000 297,957,000 -------------- -------------- Premises and equipment, net 10,726,000 10,893,000 Other assets 5,916,000 5,440,000 -------------- -------------- TOTAL ASSETS $445,448,000 $438,243,000 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY: Noninterest-bearing deposits $ 60,943,000 $ 63,802,000 Interest-bearing deposits 310,061,000 302,578,000 -------------- -------------- Total deposits 371,004,000 366,380,000 -------------- -------------- Federal funds purchased and securities sold under agreements to repurchase 24,346,000 23,386,000 Federal Home Loan Bank advances 1,095,000 1,095,000 Other liabilities 3,974,000 3,184,000 -------------- -------------- Total liabilities 400,419,000 394,045,000 STATEMENT CONTINUED ON NEXT PAGE 4 STATEMENT CONTINUED FROM PREVIOUS PAGE Shareholders' equity: Common stock $1.00 par: Authorized 5,000,000 Outstanding 4,138,533 and 4,138,533 respectively 4,138,000 4,138,000 Additional capital 20,178,000 20,178,000 Retained earnings 20,737,000 19,873,000 Net unrealized security gains(losses) (24,000) 9,000 -------------- -------------- Total shareholders' equity 45,029,000 44,198,000 -------------- -------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $445,448,000 $438,243,000 ============== ============== Note 1: The consolidated balance sheet at December 31, 1996 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 ------------------------------ 1997 1996 INTEREST INCOME: ------------------------------ Interest and fees on loans: Taxable $ 6,642,000 $ 6,242,000 Tax-exempt 13,000 16,000 Interest and dividends on securities: Taxable 1,556,000 1,500,000 Tax-exempt 35,000 73,000 Interest on Federal funds sold and other interest bearing instruments 10,000 61,000 ------------- ------------- TOTAL INTEREST INCOME 8,256,000 7,892,000 ------------- ------------- INTEREST EXPENSE: Interest on certificates of deposit of $100,000 or more 558,000 444,000 Interest on other deposits 2,172,000 2,196,000 Interest on Federal funds purchased and securities sold under agreements to repurchase 252,000 238,000 Federal Home Loan Bank interest 17,000 -0- ------------- ------------- TOTAL INTEREST EXPENSE 2,999,000 2,878,000 ------------- ------------- NET INTEREST INCOME 5,257,000 5,014,000 Provision for possible loan losses 125,000 125,000 NET INTEREST INCOME AFTER PROVISION ------------- ------------- FOR POSSIBLE LOAN LOSSES 5,132,000 4,889,000 ------------- ------------- OTHER INCOME: Trust division income 278,000 278,000 Service charges on deposit accounts 545,000 484,000 Other charges fees and exchanges 460,000 423,000 Other operating income 10,000 36,000 ------------- ------------- TOTAL OTHER INCOME 1,293,000 1,221,000 STATEMENT CONTINUED ON NEXT PAGE 6 STATEMENT CONTINUED FROM PREVIOUS PAGE OTHER EXPENSES: Salaries and employee benefits 2,008,000 1,986,000 Net occupancy expense 329,000 328,000 Furniture and equipment expense 561,000 541,000 Ohio Franchise Tax 129,000 147,000 Supplies and postage 247,000 245,000 FDIC deposit insurance premium 11,000 1,000 Other operating expenses 828,000 880,000 ------------- ------------- TOTAL OTHER EXPENSES 4,113,000 4,128,000 ------------- ------------- INCOME BEFORE FEDERAL INCOME TAXES 2,312,000 1,982,000 FEDERAL INCOME TAXES 787,000 656,000 ------------- ------------- NET INCOME $ 1,525,000 $ 1,326,000 ============= ============= PER SHARE DATA: EARNINGS $ .37 $ .32 ======= ======= CASH DIVIDENDS $ .16 $ .14 ======= ======= 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 ---------------------------- 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES: ---------------------------- Interest received $ 7,835,000 $ 7,693,000 Other income received 1,294,000 1,213,000 Interest paid (2,855,000) (2,881,000) Cash paid for salaries and benefits (1,856,000) (1,848,000) Net occupancy expense of premises paid (232,000) (254,000) Furniture and equipment expenses paid (207,000) (195,000) Cash paid for supplies and postage (247,000) (245,000) Cash paid for other operating expenses (908,000) (1,185,000) Federal income taxes paid -0- (150,000) ------------- ------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 2,824,000 2,148,000 ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Net (decrease) in securities available for sale (33,000) (56,000) Proceeds from maturities of securities available for sale -0- 2,395,000 Proceeds from maturities of investment securities 5,806,000 5,596,000 Purchase of securities available for sale -0- (1,742,000) Purchases of investment securities (6,071,000) (5,297,000) Net decrease in credit card loans 568,000 233,000 Net (increase) in long-term loans (4,518,000) (2,443,000) Purchases of bank premises, equipment and software (620,000) (316,000) Proceeds from sales of bank premises, and equipment 1,000 -0- ------------- ------------- NET CASH USED IN INVESTING ACTIVITIES (4,867,000) (1,630,000) ------------- ------------- STATEMENT CONTINUED ON NEXT PAGE 8 STATEMENT CONTINUED FROM PREVIOUS PAGE CASH FLOWS FROM FINANCING ACTIVITIES: Net (decrease) in demand and other on interest-bearing deposits (2,859,000) (2,062,000) Net increase (decrease) in savings and passbook deposits 1,028,000 20,000 Net increase (decrease) in time deposit 6,455,000 (367,000) Net increase in federal funds purchased and other interest bearing instruments 960,000 46,000 Proceeds from exercise of stock options -0- 33,000 Dividends paid (662,000) (647,000) ------------- ------------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 4,922,000 (2,977,000) ------------- ------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,879,000 (2,459,000) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 18,993,000 27,530,000 ------------- ------------- CASH AND CASH EQUIVALENTS AT END OF QUARTER $21,872,000 $25,071,000 ============= ============= 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, 1997, compared to December 31, 1996 and the results of operations for the three months ending March 31, 1997 compared to the same period in 1996. 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, 1997, the condensed consolidated statements of income and the condensed consolidated statement of cash flows for the three months ended March 31, 1997 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, 1996 Annual Report to Shareholders. The results of operations for the period ended March 31, 1997 are not necessarily indicative of the operating results for the full year. 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 10 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. 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 1996 amounts have been reclassified to conform to 1997 presentation. 11 2. EARNINGS PER SHARE The Corporation adopted SFAS No. 128 "Earnings Per Share" on January 1, 1997. This Statement specifies the computation, presentation and disclosure requirements for earnings per share, for entities with publicly held common stock or potential common stock. The per share data has been adjusted to reflect the two percent stock dividend in 1996. In accordance with SFAS No. 128, Earnings per share is calculated as follows: For the Quarter ended March 31, 1997 Income Shares Per-Share (Numerator) (Denominator) Amount Income before extraordinary Item and accounting change $1,525,000 Basic EPS Income available to common stockholders $1,525,000 4,138,533 $ .37 ===== Effect of Dilutive Securities 10,704 Incentive Stock Options -0- -0- ---------- --------- Dilutive EPS Income available to common stockholders + assumed conversions $1,525,000 4,149,239 $ .37 ========== ========= ===== 3. DISCLOSURE OF INFORMATION ABOUT CAPITAL STUCTURE The Corporation adopted SFAS No. 129 "Disclosure of Information about Capital Structure" on January 1, 1997. This statement requires in summary form within the financial statements, the pertinent rights and privileges of the various securities outstanding. Corporate Management has determined that the adoption of SFAS No. 129 will increase year-end disclosure requirements for capital. 4. CONTINGENCY On April 14, 1997, LNB Bancorp, Inc. (the "Corporation"), the holding company for Lorain National Bank (the "Bank"), issued a news release announcing that the Bank had entered into a Branch Purchase and Assumption Agreement to acquire three branch offices located in Lorain County, Ohio, and approximately $55 million of deposits and consumer loans totaling nearly $18 million from KeyBank National Association, Cleveland, Ohio ("Seller"). Consummation of the transaction is subject to, among other conditions, regulatory approval. A copy of the press release issued by the Corporation on April 14, 1997, is attached hereto as Exhibit 19, and incorporated herein by reference in its entirety. 12 PART I - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATION FINANCIAL CONDITION Total assets of the Corporation increased $7,205,000 during the first quarter, to $445,448,000. The increase in assets is attributable to increases in savings deposits and time deposits and securities sold under agreements to repurchase. Federal funds sold and other interest-bearing investments increased by $2,402,000 during the first quarter of 1997. The total securities portfolio increased $275,000 ending the first quarter at $105,235,000. At March 31,1997 unrealized gains (losses) in the securities portfolio were approximately $442,000 and ($571,000), respectively. The decrease in the market value of the security portfolio is due to market interest rate fluctuations and not due to the deterioration of the credit worthiness of debt issuers. The level of nonperforming assets decreased $207,000 during the first quarter 1997. The first quarter decrease is the result of a net decrease in nonaccrual loans plus an decrease in other real estate owned in the amount of $39,000. The decrease in nonaccrual loans is due to decreases in nonaccrual principal balances of $243,000 which have been paid off and brought current and increases in nonaccrual principal balances of $75,000. The decrease in nonaccrual loans in the first quarter of 1997 was due primarily to two commercial loan charge-offs which included recoveries from the Small Business Administration. 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. Amounts in thousands 03/31/97 12/31/96 09/30/96 06/30/96 -------- -------- -------- -------- Nonperforming Assets: Nonaccrual $ 597 $ 765 $ 941 $ 69 Restructured 0 0 0 0 Other Real Estate Owned 0 39 39 39 ------ ------ ------ ------ Total Nonperforming Assets $ 597 $ 804 $ 980 $ 108 ====== ====== ====== ====== Reserve for possible loan losses to nonperforming assets 684.4% 511.9% 419.6% 3,699.1% ====== ====== ====== ====== Accruing loans past due 90 days 180 357 396 243 ====== ====== ====== ====== 13 Net loans increased $3,713,000 during the first quarter to $301,697,000 at March 31, 1997. The reserve for possible loan losses ended the quarter at $4,089,000 supported by a provision for loan losses of $125,000, recoveries of $22,000 and loan charge-offs of $174,000. The reserve for possible loan losses as a percentage of ending loans was 1.36% at December 31, 1996 and 1.34% at March 31, 1997. Corporate Management believes that the reserve for possible loan losses as a percentage of ending loans at March 31, 1997 remains at an appropriate level as the ratio of the reserve for possible loan losses to nonperforming assets remains strong at 684.4% as of March 31, 1997. 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, 1997 there are no significant concentrations of credit in the loan portfolio. The Corporation had outstanding loan and credit commitments to make loans totaling $63,001,000 and $67,920,000 at March 31, 1997 and 1996, respectively. The decrease in outstanding loan commitments results in part from decreased loan demand in the first quarter of 1997. Mortgage and commercial construction loan demand is expected to increase in the second quarter of 1997 as seasonal weather conditions improve and the construction season begins. Total deposits increased $4,624,000 during the first quarter to $371,004,000. Noninterest-bearing deposits decreased to $60,943,000, at March 31, 1997 for a decrease of $2,859,000, while interest-bearing deposits increased to $310,061,000 for an increase of $7,483,000. Federal funds purchased and securities sold under agreements to repurchase increased $960,000 during the first quarter of 1997. 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 relatively high liquid position in order to take advantage of interest rate fluctuations. As of March 31, 1997 short-term security investments with maturities of one year or less totaled $25,518,000 which represented 24.2% of total securities. Adding cash and due from banks of $19,369,000 and Federal Funds sold of $2,505,000, total liquid assets represented 10.6% of total assets. 14 CAPITAL RESOURCES Total shareholders' equity increased to $45,029,000, at March 31, 1997. The increase resulted primarily from $1,525,000 of net income generated from the first quarter of operations less a cash dividend payable to shareholders of $662,000. 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 slight increase in interest rates experienced in the first quarter of 1997 has caused a decrease in the market value of these securities which resulted in a reduction of shareholders' equity by $33,000 for the quarter ended March 31, 1997. 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, 1997 and 1996 follow. MARCH 31, -------------------- 1997 1996 ------ ------- Tier I capital ratio 17.02% 16.86% Required Tier I capital ratio 4.00% 4.00% Total capital ratio 18.28% 18.11% Required total capital ratio 8.00% 8.00% Leverage ratio 10.24% 9.93% 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. RESULTS OF OPERATIONS Interest and fees on loans increased $397,000 when compared to the first quarter of 1996. This was the result of the impact of slight increases in rates combined with loan portfolio growth. Interest and dividends on securities was $1,593,000 for the first quarter of 1997 for a increase of $18,000 over the same period in 1996. Interest and dividends on securities represented 19.3% of total interest income at March 31, 1997 compared to 20.0% at March 31, 1996. Interest on Federal funds sold and other interest bearing instruments was $8,000 at March 31, 1997 compared to $59,000 at March 31, 1996. The decrease resulted from lower average balances invested in this form of financial instrument along with lower interest rates. 15 Total interest expense increased by $121,000 when compared to the first quarter of 1996. The impact of increases in the volume of Federal Funds purchased and statement savings and certificates of deposit contributed to the increase in total interest expense. Also, total interest expense for the first quarter of 1997 was impacted by decreases in interest rates paid on certificate of deposit accounts when compared to the first quarter of 1996. Total other income increased by $72,000 when compared to the first quarter of 1996. This increase resulted from decreases in other operating income of $25,000, increases in service charges of $61,000 and increases in other charges of $37,000. 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, 1997 was $4,113,000, 0.4% less than the first quarter of 1996. This decrease was due primarily to certain one-time consulting expenses incurred in the first quarter of 1996 and a $16,000 reduction in Ohio franchise tax. The effective tax rate increased from 33.1% during the first quarter of 1996 to 34.0% during the first quarter of 1997. The increase in the effective rate is primarily due to changes of the proportion of nontaxable to taxable interest income. Net income was $1,525,000 and $1,326,000 for the quarters ended March 31, 1997 and 1996, respectively. Net income per share after adjusting for the two percent stock dividend in 1996 was $.37 and $.32 for the quarters ended March 31, 1997 and 1996, 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. 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 1997 Annual Meeting of Shareholders was held on April 15, 1997. (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, (1) Election of directors to serve as Class II Directors until April 18, 2000 Annual Meeting of Shareholders as follows: ABSTAIN/ BROKER FOR AGAINST WITHHELD NON-VOTES James F. Kidd 3,514,431 -0- 19,748 604,354 Jeffrey F. Riddell 3,527,827 -0- 6,262 604,444 Thomas P. Ryan 3,494,771 -0- 39,318 604,444 Paul T. Stack 3,529,564 -0- 4,522 604,447 Robert M. Campana 3,515,743 -0- 18,346 604,444 The total number of shares of LNB Bancorp, Inc. Common Stock, $1.00 par value, outstanding as of March 17, 1997, the record date of the Annual Meeting, was 4,138,533. (2) A proposed two percent (2%) common stock dividend (totaling 82,790 shares) payable to shareholders of record April 15, 1997 was approved: increasing the total number of shares outstanding to 4,222,275. The vote on Item 4, (c), (2): ABSTAIN/ BROKER FOR AGAINST WITHHELD NON-VOTES 3,489,432 4,672 33,673 610,756 17 ITEM 5 - Other Information (a) The Notice of the Annual Meeting to Shareholders and Proxy Statement (dated March 17, 1997) was previously filed as Exhibit 22 to the Bancorp's 1996 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, 1997 - EDGAR Version. (c) Exhibit 19 - News Release to Shareholders of LNB Bancorp, Inc. - April 14, 1997 (d) Exhibit (27) - Financial Data Schedule (e) Reports on Form 8-K There were no reports on Form 8-K filed for the three months ended March 31, 1997. 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, 1997 -------------------------- Gregory D. Friedman, Senior Vice President, Chief Operating Officer and Chief Financial Officer Date: May 10, 1997 -------------------------- 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, 1997 - EDGAR Version (19) News Release to Shareholders of LNB Bancorp, Inc. - April 14, 1997 (27) Financial Data Schedule 19 LNB Bancorp, Inc. Exhibit to Form 10-Q (For the three months ended March 31, 1997) S - K Reference Number (11) Computation of Shares Used for Earnings Per Share Calculations. Three Months Ended March 31 1997 1996 --------- --------- Weighted-Average Shares Outstanding 4,138,533 4,121,876 Common Stock Equivalents (Stock Options) 10,704 16,676 --------- --------- 4,149,237 4,138,552 ========= ========= 20 LNB Bancorp, Inc. Exhibit to Form 10 - Q (For the three months ended March 31, 1997) S - K Reference Number (13) First Quarter Report to Shareholders of LNB Bancorp, Inc. - March 31, 1997 EDGAR Version DESCRIPTION: Two sided pamphlet: Outside beige cover with brown lettering. Inside contains: List of Officers of LNB Bancorp, Inc., Unaudited Consolidated Balance Sheets for period ending March 31, 1997 and March 31, 1996, respectively, unaudited EDGAR version Consolidated Statements of Income for the Three Months Ended March 31, 1997 and March 31, 1996, respectively, and the list of Customer Service Locations. 21 Outside cover description: Beige background, brown lettering. Front Cover: LNB BANCORP, INC. Quarterly Report Picture of five hands pulling down on a rope with a hoist. March 31, 1997 (lower middle of cover) Back Cover: (LOGO) LNB Bancorp, Inc. and its subsidiary Lorain National Bank 457 Broadway Lorain, Ohio 44052-1739 (216) 244-6000 or (800) 860-1007 (lower middle of back cover) 22 Officers of LNB Bancorp, Inc. James F. Kidd President and Chief Executive Officer Thomas P. Ryan Executive Vice President and Secretary/Treasurer Gregory D. Friedman Senior Vice President, Chief Operating Officer and Chief Financial Officer Michael D. Ireland Senior Vice President Emma N. Mason Senior Vice President James H. Weber Senior Vice President Mitchell J. Fallis Vice President and Chief Accounting Officer Sandra L. Kotradi Vice President and Chief Lending Officer 23 Consolidated Balance Sheets March 31 -------------------------- 1997 1996 ------------ ------------ ASSETS: Cash and Due from Banks $ 19,369,000 $ 21,869,000 Federal Funds Sold and 2,505,000 3,202,000 Other Interest Bearing Instruments Securities Available for Sale 16,077,000 15,650,000 Investment Securities 89,158,000 87,920,000 Loans 305,786,000 278,483,000 Reserve for Possible Loan Losses (4,089,000) (3,945,000) - ----------------------------------------------------------------- NET LOANS 301,697,000 274,538,000 - ----------------------------------------------------------------- Premises and Equipment (net) 10,726,000 10,918,000 Other Assets 5,916,000 6,430,000 - ----------------------------------------------------------------- TOTAL ASSETS $445,448,000 $420,527,000 - ----------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY: Non-Interest Bearing Deposits $ 60,943,000 $ 58,101,000 Interest Bearing Deposits 310,061,000 292,945,000 - ----------------------------------------------------------------- TOTAL DEPOSITS 371,004,000 351,046,000 - ----------------------------------------------------------------- Securities Sold under Repurchase Agreements 24,346,000 24,214,000 Federal Home Loan Bank Advances 1,095,000 -0- Other Liabilities 3,974,000 3,734,000 - ----------------------------------------------------------------- TOTAL LIABILITIES 400,419,000 378,994,000 - ----------------------------------------------------------------- Common stock 4,138,000 4,044,000 Additional capital 20,178,000 17,882,000 Retained Earnings 20,737,000 19,621,000 Net Unrealized Security (Losses) (24,000) (14,000) - ----------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 45,029,000 41,533,000 - ----------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $445,448,000 $420,527,000 - ----------------------------------------------------------------- (LOGO) LNB Bancorp, Inc. and its subsidiary Lorain National Bank 24 Consolidated Statements of Income Three Months Ended March 31 ------------------------ 1997 1996 ------------ ----------- INTEREST INCOME: Interest and Fees on Loans $6,655,000 $6,258,000 Interest and Dividends on Securities: 1,593,000 1,575,000 Interest on Federal Funds Sold 8,000 59,000 - ---------------------------------------------------------------- TOTAL INTEREST INCOME 8,256,000 7,892,000 - ---------------------------------------------------------------- INTEREST EXPENSE: Interest on Deposits 2,730,000 2,640,000 Interest on Federal Funds Purchased and Securities Sold under Repurchase Agreements 252,000 238,000 Federal Home Loan Bank Interest 17,000 -0- - ---------------------------------------------------------------- TOTAL INTEREST EXPENSE 2,999,000 2,878,000 - ---------------------------------------------------------------- NET INTEREST INCOME 5,257,000 5,014,000 Provision for Loan Losses 125,000 125,000 - ---------------------------------------------------------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 5,132,000 4,889,000 - ---------------------------------------------------------------- OTHER INCOME: Trust Department Income 278,000 278,000 Fees and Service Charges 1,005,000 908,000 Gains from Sales of Loans and Securities -0- -0- Other Operating Income 10,000 35,000 - ---------------------------------------------------------------- TOTAL OTHER INCOME 1,293,000 1,221,000 - ---------------------------------------------------------------- OTHER EXPENSES: Salaries and Employee Benefits 2,008,000 1,986,000 Net Occupancy Expense of Premises 329,000 328,000 Furniture and Equipment Expenses 561,000 541,000 Supplies and Postage 247,000 245,000 Ohio Franchise Tax 129,000 147,000 Other Operating Expenses 839,000 881,000 - ---------------------------------------------------------------- TOTAL OTHER EXPENSES 4,113,000 4,128,000 - ---------------------------------------------------------------- INCOME BEFORE FEDERAL INCOME TAXES 2,312,000 1,982,000 Federal Income Taxes 787,000 656,000 - ---------------------------------------------------------------- NET INCOME $1,525,000 $1,326,000 - ---------------------------------------------------------------- PER SHARE DATA: NET INCOME $ .37 $ .32 - ---------------------------------------------------------------- DIVIDENDS DECLARED $ .16 $ .14 ================================================================ The per share data has been adjusted to reflect the two percent stock dividend in 1996. Net income per share is based on weighted average common and common equivalent shares outstanding. 25 Three column format Customer Service Locations Bank Offices Oberlin Avenue Office 3660 Oberlin Avenue Amherst Office Lorain, Ohio 1175 Cleveland Avenue (216) 282-9196 Amherst, Ohio (216) 988-4423 Olmsted Office 27095 Bagley Road Avon Lake Office Olmsted Township, Ohio 240 Miller Road (216) 235-4600 Avon Lake, Ohio (216) 933-2186 Pearl Avenue Office 2850 Pearl Avenue Cleveland Street Office Lorain, Ohio 801 Cleveland Street (216) 277-1103 Elyria, Ohio (216) 365-8397 The Renaissance Office 26376 John Road Kansas Avenue Office Olmsted Township, Ohio 1604 Kansas Avenue (216) 427-0041 Lorain, Ohio (216) 288-9151 Second Street Office 221 Second Street Lake Avenue Office Elyria, Ohio 42935 E. North Ridge Road (216) 323-4621 Elyria, Ohio (216) 233-7196 Vermilion Office 4455 Liberty Avenue Main Office* Vermilion, Ohio 457 Broadway (216) 967-3124 Lorain, Ohio (216) 244-7185 West Park Drive Office 2130 West Park Drive Sixth Street Drive-In Lorain, Ohio 200 Sixth Street (216) 988-3131 Lorain, Ohio (216) 244-7242 The Crossings of Westlake Office 30210 Detroit Road Oberlin Office Westlake, Ohio 40 East College Street (216) 892-9696 Oberlin, Ohio (216) 775-1361 Westlake Village Office 28550 Westlake Village Drive Kendal at Oberlin Office Westlake, Ohio 600 Kendal Drive (216) 808-0229 Oberlin, Ohio (216) 774-5400 26 Community-Based Automated Teller Machine Locations Convenient Food Mart Cash Machine 5375 West Erie Avenue Lorain, Ohio Lakeland Medical Center 3700 Kolbe Road Lorain, Ohio Lorain Community/St Joseph Regional Health Center 205 W. 20th Street Lorain, Ohio Lorain County Community College 1005 N. Abbe Road Elyria, Ohio Lorain Plaza 1147 Meister Road Lorain, Ohio Lowe's Home Improvement Warehouse 620 Midway Boulevard Elyria, Ohio Midway Mall Food Court 3343 Midway Mall Boulevard Elyria, Ohio Route 60 and Sailorway Drive 1317 State Route 60 Vermilion, Ohio *Drive-up ATM is available at Sixth Street Drive-In. All other Bank offices feature ATMs, except Westlake Village Office and The Renaissance Office. 27 LNB Bancorp, Inc. Exhibit to Form 10 - Q (For the three months ended March 31, 1997) S - K Reference Number (19) News Release to Shareholders of LNB Bancorp, Inc. - April 14, 1997 28 FOR IMMEDIATE RELEASE (216) 244-6000 FAX 244-4815 Steven F. Cooper Assistant Vice President April 14, 1997 LORAIN NATIONAL TO ACQUIRE THREE BRANCH OFFICES FROM KEYCORP James F. Kidd, President and Chief Executive Officer of Lorain National Bank, has announced the signing of an agreement to acquire three KeyBank branches in Lorain County, with total deposits of approximately $55 million and consumer loans totaling nearly $18 million. The branches are located at 383 Broadway, 1920 Cooper-Foster Park Road in Lorain and 6395 Midway Boulevard at the Midway Mall in Elyria. Approximately 20 employees associated with the branches will be offered employment by Lorain National Bank. The transaction is subject to regulatory approval and is scheduled to close in the third quarter of this year. "As a locally owned, independent bank, we are very pleased with this opportunity to increase our presence within Lorain County, our core market," Kidd said. "This acquisition allows us to broaden our customer base and support our vision to become recognized as the most progressive and dynamic provider of financial services in our market." "Our new customers will immediately enjoy the benefits of our county-wide banking locations, conveniently located ATMs and community-oriented service culture," Kidd added. "By adding new branches to our system, our existing customers will benefit from added convenience, particularly those who frequent the Midway Mall area," Kidd said. "The new mall banking office will dovetail nicely with our ATM already located in the Midway Mall food court." The acquisition of the three banking offices will give Lorain National a deposit market share of approximately 15% of all bank, savings & loan and credit union deposits in Lorain County, according to published sources. "This will give us additional liquidity and allow us to retain these deposits to lend locally in our market area," Kidd stated. Once the acquisition is complete, Lorain National Bank will operate 21 banking facilities and 26 ATMs in Lorain, Cuyahoga and Erie counties. The bank's offices are located in Lorain, Elyria, Amherst, Avon Lake, Oberlin, Olmsted Township, Vermilion and Westlake. Lorain National Bank, a bank with local roots dating back to 1905, is a wholly-owned subsidiary of LNB Bancorp, Inc., with assets totaling $445.5 million as of March 31, 1997. The Bancorp recorded its highest ever first quarter consolidated net income, $1,525,000, up from $1,326,000 for the comparative period in 1996. LNB Bancorp, Inc. and Lorain National Bank significantly exceed all applicable regulatory capital requirements. Under Federal Deposit Insurance Corporation (FDIC) guidelines, Lorain National Bank is categorized as "well capitalized" - the highest rating category available. Lorain National Bank currently employs approximately 275 employees at its community bank branches and administrative offices and computer operations center in Lorain. The full-service bank offers a complete line of consumer, mortgage, commercial and trust & investment products and services. 29 LNB Bancorp, Inc. Exhibit to Form 10 - Q (For the three months ended March 31, 1997) S - K Reference Number (27) Financial Data Schedule EX-27 2
9 0000737210 LNB BANCORP, INC. 1,000 U.S. 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 1 19,369 105 2,400 0 16,077 89,158 89,029 305,786 (4,089) 445,448 371,004 24,346 3,974 1,095 0 0 4,138 40,891 445,448 6,655 1,593 8 8,256 2,730 2,999 5,257 125 0 4,113 2,312 1,525 0 0 1,525 .37 .37 5.19 597 180 0 1,207 4,116 174 22 4,089 3,010 0 1,079
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