-----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, LHTrSzzAGvc+voZhs6pdF+rDfSbLINRxgIAwsnbj2WRrUWmBjAZq2MPrOO++WmHF Q+XltO69RW6qDsI2S1cd6Q== 0000737210-98-000013.txt : 19981116 0000737210-98-000013.hdr.sgml : 19981116 ACCESSION NUMBER: 0000737210-98-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 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: SEC FILE NUMBER: 000-13203 FILM NUMBER: 98747039 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, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-13203 LNB Bancorp, Inc. (Exact name of the registrant as specified in its charter) Ohio 34-1406303 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 457 Broadway, Lorain, Ohio 44052 - 1769 (Address of principal executive offices) (Zip Code) (440) 244 - 6000 Registrant's telephone number, including area code Not Applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such requirements for the past 90 days. YES X NO Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Outstanding at October 25, 1998: 4,122,575 shares Class of Common Stock: $1.00 par value 2 LNB Bancorp, Inc. Quarterly Report on Form 10-Q Quarter Ended September 30, 1998 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 16 of Financial Condition and Results of Operations Item 3 - Quantitative and Qualitative Disclosures 24 About Market Risk Part II - Other Information Item 1 - Legal Proceedings 25 Item 2 - Changes in Securities 25 Item 3 - Defaults upon Senior Securities 25 Item 4 - Submission of matters to a Vote of 25 Security Holders Item 5 - Other Information 25 Item 6 - Exhibit and Reports on Form 8-K 25 Signatures 25 Exhibit Index 26 3 FORM 10-Q LNB BANCORP, INC. PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS SEPTEMBER 30, DECEMBER 31, CONDENSED CONSOLIDATED BALANCE SHEETS 1998 1997 ------------- ------------- (Unaudited) (See Note 1) ASSETS: Cash and due from banks $ 22,054,000 $ 24,273,000 Federal funds sold and other interest bearing instruments 3,936,000 134,000 Securities: Available for sale 46,914,000 19,336,000 Held to maturity 71,003,000 96,038,000 ------------- ------------- Total Securities 117,917,000 115,374,000 (Market Value $119,296,000 and ------------- ------------- $116,197,000 respectively) Loans: Portfolio Loans 351,431,000 319,666,000 Loans available for sale 10,368,000 11,365,000 ------------- ------------- Total loans 361,799,000 331,031,000 Reserve for possible loan losses (4,675,000) (4,168,000) ------------- ------------- Net loans 357,124,000 326,863,000 ------------- ------------- Bank premises and equipment, net 10,784,000 11,321,000 Intangible assets 4,778,000 5,114,000 Accrued interest receivable and other assets 7,018,000 7,138,000 ------------- ------------- TOTAL ASSETS $523,611,000 $490,217,000 ============= ============= STATEMENT CONTINUED ON NEXT PAGE 4 STATEMENT CONTINUED FROM PREVIOUS PAGE LIABILITIES AND SHAREHOLDERS' EQUITY: Noninterest-bearing deposits $ 74,543,000 $ 68,565,000 Interest-bearing deposits 358,765,000 342,090,000 ------------- ------------- Total deposits 433,308,000 410,655,000 ------------- ------------- Federal funds purchased and Securities sold under agreements to repurchase 34,622,000 26,750,000 Federal Home Loan Bank advances 2,045,000 2,045,000 Line of Credit 1,600,000 2,200,000 Accrued taxes, expenses and other liabilities 3,868,000 3,582,000 ------------- ------------- Total Liabilities 475,443,000 445,232,000 ------------- ------------- Shareholders' equity: Common stock $1.00 par: Shares authorized 5,000,000 Shares issued 4,222,575 and 4,222,375, respectively and outstanding 4,122,575 and 4,124,379, respectively 4,222,000 4,222,000 Additional capital 22,602,000 22,599,000 Retained earnings 23,681,000 20,937,000 Accumulated other comprehensive income 563,000 70,000 Treasury Stock at cost, 100,000 and 97,996 shares respectively (2,900,000) (2,843,000) ------------- ------------- Total Shareholders' Equity 48,168,000 44,985,000 ------------- ------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $523,611,000 $490,217,000 ============= ============= NOTE 1: The consolidated balance sheet at December 31, 1997 has been derived from the audited Financial Statements and condensed. See notes to unaudited 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 ------------------------- 1998 1997 INTEREST INCOME: ------------ ------------ Interest and fees on loans: Taxable $22,720,000 $20,725,000 Tax-exempt 32,000 37,000 Interest and dividends on securities: Taxable 5,317,000 4,818,000 Tax-exempt 151,000 107,000 Interest on Federal funds sold and other interest bearing instruments 113,000 63,000 ------------ ------------ TOTAL INTEREST INCOME 28,333,000 25,750,000 ------------ ------------ INTEREST EXPENSE: Interest on certificates of deposit of $100,000 or more 1,742,000 1,733,000 Interest on other deposits 7,706,000 6,747,000 Interest on securities sold under repurchase agreements and other short-term borrowings 882,000 925,000 Interest on Federal Home Loan Bank advances 98,000 53,000 ------------ ------------ TOTAL INTEREST EXPENSE 10,428,000 9,458,000 ------------ ------------ NET INTEREST INCOME 17,905,000 16,292,000 Provision for possible loan losses 1,263,000 375,000 ------------ ------------ NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES 16,642,000 15,917,000 ------------ ------------ OTHER INCOME: Trust division income 1,358,000 955,000 Service charges on deposit accounts 1,993,000 1,690,000 Other charges, fees and exchanges 1,711,000 1,555,000 Other operating income 49,000 36,000 ------------ ------------ TOTAL OTHER INCOME 5,111,000 4,236,000 STATEMENT CONTINUED ON NEXT PAGE 6 STATEMENT CONTINUED FROM PREVIOUS PAGE OTHER EXPENSES: Salaries and employee benefits 6,576,000 6,321,000 Net occupancy expense 1,005,000 957,000 Furniture and Equipment Expense 1,617,000 1,719,000 Amortization of intangible assets 355,000 18,000 Supplies and postage 790,000 725,000 Ohio Franchise Tax 353,000 367,000 FDIC deposit insurance premium 38,000 30,000 Other operating expenses 3,071,000 2,728,000 ------------ ------------ TOTAL OTHER EXPENSES 13,805,000 12,865,000 ------------ ------------ INCOME BEFORE FEDERAL INCOME TAXES 7,948,000 7,288,000 FEDERAL INCOME TAXES 2,690,000 2,508,000 ------------ ------------ NET INCOME $ 5,258,000 $ 4,780,000 ============ ============ PER SHARE DATA: BASIC EARNINGS PER SHARE $ 1.27 $ 1.14 ====== ====== DILUTED EARNINGS PER SHARE $ 1.27 $ 1.14 ====== ====== DIVIDENDS PER SHARE $ .61 $ .49 ====== ====== See notes to unaudited 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 -------------------------- 1998 1997 INTEREST INCOME ------------ ------------ Interest and fees on loans: Taxable $ 7,945,000 $ 7,165,000 Tax-Exempt 10,000 12,000 Interest and dividends on securities: Taxable 1,808,000 1,661,000 Tax-Exempt 49,000 36,000 Interest on Federal funds sold and other interest bearing instruments 18,000 26,000 ------------ ----------- TOTAL INTEREST INCOME 9,830,000 8,900,000 ------------ ----------- INTEREST EXPENSE: Interest on certificates of deposit of $100,000 or more 664,000 582,000 Interest on other deposits 2,551,000 2,330,000 Interest on securities sold under repurchase agreements and other short-term borrowings 330,000 372,000 Interest on Federal Home Loan Bank advances 33,000 18,000 ------------ ----------- TOTAL INTEREST EXPENSE 3,578,000 3,302,000 ------------ ----------- NET INTEREST INCOME 6,252,000 5,598,000 Provision for possible loan losses 838,000 125,000 NET INTEREST INCOME AFTER PROVISION ------------ ----------- FOR POSSIBLE LOAN LOSSES 5,414,000 5,473,000 ------------ ----------- OTHER INCOME: Trust division income 332,000 378,000 Service charges on deposit accounts 699,000 597,000 Other charges, fees and exchanges 602,000 553,000 Other operating income 25,000 16,000 ------------ ----------- TOTAL OTHER INCOME 1,658,000 1,544,000 STATEMENT CONTINUED ON NEXT PAGE 8 STATEMENT CONTINUED FROM PREVIOUS PAGE OTHER EXPENSES: Salaries and employee benefits 2,073,000 2,184,000 Net occupancy expense 334,000 314,000 Furniture and equipment expense 439,000 593,000 Amortization of intangible assets 131,000 18,000 Supplies and postage 247,000 255,000 Ohio Franchise Tax 84,000 115,000 FDIC deposit insurance premium 13,000 8,000 Other operating expenses 993,000 988,000 ------------ ------------ TOTAL OTHER EXPENSES 4,314,000 4,475,000 ------------ ------------ INCOME BEFORE FEDERAL INCOME TAXES 2,758,000 2,535,000 FEDERAL INCOME TAXES 932,000 882,000 ------------ ------------ NET INCOME $ 1,826,000 $ 1,660,000 ============ ============ PER SHARE DATA: BASIC EARNINGS PER SHARE $ .44 $ .40 ====== ====== DILUTED EARNINGS PER SHARE $ .44 $ .40 ====== ====== DIVIDENDS PER SHARE $ .21 $ .17 ====== ====== See notes to unaudited 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 ------------------------- 1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES: ------------ ------------ Interest received $27,947,000 $25,061,000 Other income received 4,883,000 4,221,000 Interest paid (10,277,000) (9,315,000) Cash paid for salaries and benefits (6,320,000) (6,310,000) Net occupancy expense of premises paid (744,000) (675,000) Furniture and equipment expenses paid (597,000) (627,000) Cash paid for supplies and postage (790,000) (725,000) Cash paid for other operating expenses (2,011,000) (3,132,000) Federal income taxes paid (2,798,000) (2,311,000) ------------- ------------ NET CASH PROVIDED BY OPERATING ACTIVITIES: 9,293,000 6,187,000 ------------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities of securities available for sale 9,278,000 3,280,000 Proceeds from maturities of securities held to maturity 27,366,000 11,979,000 Purchase of securities available for sale (38,938,000) (22,120,000) Purchase of securities held to maturity (155,000) (4,201,000) Net decrease in credit card loans 600,000 430,000 Net (increase) in long-term loans (32,427,000) (30,672,000) Purchases of bank premises, equipment and intangible assets (756,000) (7,075,000) Proceeds from sales of bank premises and equipment 7,000 9,000 ------------- ------------ NET CASH USED IN INVESTING ACTIVITIES (35,025,000) (48,370,000) ------------- ------------ STATEMENT CONTINUED ON NEXT PAGE 10 STATEMENT CONTINUED FROM PREVIOUS PAGE CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in demand and other noninterest-bearing deposits 5,978,000 1,747,000 Net increase (decrease) in savings and passbook deposits (3,168,000) 12,349,000 Net increase in time deposits 19,843,000 41,627,000 Net increase in Federal funds purchased and other interest bearing instruments 7,872,000 144,000 Proceeds from line of credit -0- 2,400,000 Payment of line of credit (600,000) -0- Proceeds from exercise of stock options 3,000 19,000 Purchase of Treasury Stock (57,000) (2,583,000) Dividends paid (2,556,000) (2,110,000) ------------- ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 27,315,000 53,593,000 ------------- ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,583,000 11,410,000 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 24,407,000 18,993,000 ------------- ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $25,990,000 $30,403,000 ============ ============ RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: NET INCOME $5,258,000 $4,780,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,281,000 1,356,000 Amortization of deferred loan fees and costs, net 796,000 285,000 Provision for possible loan losses 1,263,000 375,000 Amortization of Intangible Assets 355,000 18,000 (Increase)in accrued interest receivable (371,000) (697,000) (Increase) in other assets 537,000 (92,000) Increase in accrued interest payable 151,000 143,000 Increase (decrease) in accrued taxes, expenses and other liabilities 161,000 (18,000) Others, net (138,000) 37,000 ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES $9,293,000 $6,187,000 =========== =========== See notes to unaudited 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 unaudited condensed consolidated financial statements of LNB Bancorp, Inc. (The Parent Company) and its wholly-owned subsidiary, Lorain National Bank (The Bank) at September 30, 1998, compared to December 31, 1997, and the results of its operations and cash flows for the nine months ended September 30, 1998 compared to the same period in 1997. The term "the Corporation" refers to LNB Bancorp, Inc. and its wholly-owned subsidiary. It is the intent of this discussion to provide the reader with a more thorough understanding of the unaudited condensed consolidated financial statements and supporting schedules, and should be read in conjunction with those unaudited 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, 1998, the unaudited condensed consolidated statements of income for the nine months and three months ended September 30, 1998 and 1997 and the unaudited condensed consolidated statements of cash flows for the nine months ended September 30, 1998 and 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 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 unaudited condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Corporation's December 31, 1997 Annual Report to Shareholders. The results of operations for the period ended September 30, 1998 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 12 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. 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. RECLASSIFICATIONS Certain 1997 amounts have been reclassified to conform to 1998 presentation. 2. EARNINGS PER SHARE 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 a two percent stock dividend in 1997. 13 Earnings per share is calculated as follows: For the 9 Months ended September 30, 1998 Income Shares Per-Share (Numerator) (Denominator) Amount Net Income $5,258,000 Basic EPS Income available to common stockholders $5,258,000 4,122,952 $1.27 Effect of Dilutive Securities Incentive Stock Options -0- 9,648 -0- ---------- --------- ----- Dilutive EPS Income available to common stockholders + assumed conversions $5,258,000 4,132,600 $1.27 ========== ========= ===== For the 9 Months ended September 30, 1997 Income Shares Per-Share (Numerator) (Denominator) Amount Net Income $4,780,000 Basic EPS Income available to common stockholders $4,780,000 4,182,228 $1.14 Effect of Dilutive Securities Incentive Stock Options -0- 10,650 -0- ---------- --------- ----- Dilutive EPS Income available to common stockholders + assumed conversions $4,780,000 4,192,878 $1.14 ========== ========= ===== For the 3 Months ended September 30, 1998 Income Shares Per-Share (Numerator) (Denominator) Amount Net Income $1,826,000 Basic EPS Income available to common stockholders $1,826,000 4,122,525 $ .44 Effect of Dilutive Securities Incentive Stock Options -0- 9,648 -0- ---------- --------- ----- Dilutive EPS Income available to common stockholders + assumed conversions $1,826,000 4,132,173 $ .44 ========== ========= ===== 14 For the 3 Months ended September 30, 1997 Income Shares Per-Share (Numerator) (Denominator) Amount Net Income $1,660,000 Basic EPS Income available to common stockholders $1,660,000 4,182,228 $ .40 Effect of Dilutive Securities Incentive Stock Options -0- 10,650 -0- ---------- --------- ----- Dilutive EPS Income available to common stockholders + assumed conversions $1,660,000 4,192,878 $ .40 ========== ========= ===== 3. COMPREHENSIVE INCOME The Corporation adopted SFAS No. 130 "Reporting Comprehensive Income" on January 1, 1998. This statement requires companies to report all items that are recognized as components of comprehensive income under accounting standards. As required, the Corporation displays the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital. The Corporation's comprehensive income for the nine months ended September 30, 1998 and 1997 are as follows: For the nine months ended September 30, 1998 1997 -------------------------------- Net income $5,258,000 $4,780,000 Other comprehensive income: Unrealized gain on securities available for sale, net of tax of $290,000 and $20,000 563,000 38,000 ----------- ----------- Comprehensive Income $5,821,000 $4,818,000 The Corporation's comprehensive income for the three months ended September 30, 1998 and 1997 are as follows: For the three months ended September 30 1998 1997 ------------------------------------ Net income $1,826,000 $1,660,000 Other comprehensive income: Unrealized gain on securities available for sale, net of tax of $241,000 and $13,000 467,000 25,000 ----------- ------------ Comprehensive Income $2,293,000 $1,685,000 15 4. DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION The Corporation adopted SFAS No. 131 "Disclosures about segments of an Enterprise and Related Information" on January 1, 1998. This statement provides accounting and reporting standards for the way public business are to report information about operating segments in annual financial statements and requires those enterprises report selected information about operating segments in interim financial reports issued to shareholders in years following the initial year of adoption. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. Corporate management has determined that adoption of SFAS No. 131 will have no increase in reporting and disclosure requirements. 5. PENSION AND OTHER POSTRETIREMENT BENEFITS The Corporation adopted SFAS No. 132 "Employers' Disclosures about Pensions and Other Postretirement Benefits" on January 1, 1998. This statement revises employers' disclosures about pension and other postretirement benefit plans. It does not change the measurement or recognition of those plans. It standardizes the disclosure requirements for pensions and other postretirement benefits to the extent practicable, requires additional information on changes in the benefit obligations and fair values of plan assets that will facilitate financial analysis, and eliminates certain disclosures that are no longer as useful as the were when FASB Statements No. 87, No. 88 and No. 106 were issued. Corporate management has determined that the adoption of SFAS No. 132 will change year end reporting requirements for pension and postretirement benefits. 6. DIVIDEND REINVESTMENT AND CASH STOCK PURCHASE PLAN The Board of Directors adopted a dividend reinvestment and cash stock purchase plan on November 18, 1997. Under the plan, the first dividend reinvestment and cash stock purchase date was April 1, 1998. The plan allows shareholders to elect to use their quarterly cash dividends to purchase shares of LNB Bancorp, Inc. common stock. Additionally, cash can be contributed directly to the plan for the purchase of shares of common stock with a quarterly limit of $5,000. The dividend reinvestment plan authorized the sale of 150,000 shares of the Corporation's authorized but previously unissued common shares to shareholders who choose to invest all or a portion of their cash dividends plus additional cash payments. No shares were issued by the Corporation pursuant to the plan in the first three quarters of 1998. In the first three quarters of 1998, stock was purchased in the open market at the current market price. 16 PART I - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATION FINANCIAL CONDITION Total assets of the Corporation increased $33,668,000 during the first nine months in 1998, to $523,885,000. This growth was funded by increases in Federal funds purchased, demand deposits, and certificates of deposit. Total earning assets increased 8.3% to $483,652,000 at September 30, 1998 from December 31, 1997. The ratio of earning assets to total assets increased from 91.1% at December 31, 1997 to 92.3% at September 30, 1998. The loan to deposit ratio has increased from 80.6% at 1997 year-end to 83.5% at September 30, 1998. Federal funds sold and other interest bearing investments increased by $3,802,000 during the first nine months of 1998. Total securities increased $2,543,000 ending the third quarter at $117,917,000. At September 30, 1998 gross unrealized gains (losses)in the investment securities portfolio were approximately $1,381,000 and ($2,000), respectively. Net loans increased $30,261,000 during the first nine months to $357,124,000 at September 30, 1998. Consumer loans at September 30, 1998 totaled $62,619,000, or 63%, of the increase in net loans from the year-end 1997. This net loan increase was supported by spring and summer home equity loan sale programs which resulted in new loans totaling over $8 million. Also, the net increase in consumer loans is attributable to an increase in indirect automobile loans totaling over $8 million. The reserve for possible loan losses ended the quarter at $4,675,000. Activity for the nine months ended September 30, 1998 included provision for loan losses of $1,263,000, recoveries of $126,000 and loan charge-offs of $882,000. The reserve for possible loan losses as a percentage of ending loans increased .03% from 1.26% at December 31, 1997 to 1.29% at September 30, 1998. Corporate management believes that the reserve for possible loan losses as a percentage of ending loans at September 30, 1998 remains at an appropriate level as the ratio of the reserve for possible loan losses to nonperforming assets remained at a level of 172.7% at September 30, 1998. Corporate management believes that the current level of the reserve for possible loan losses is adequate based upon an analysis of identified risks and analysis of historical trends. The level of nonperforming assets increased $2,192,000 during the first nine months of 1998. This increase is the result of a net increase in nonaccrual loans offset by a decrease in other real estate owned in the amount of $90,000. The increase in nonaccrual loans is due to decreases in nonaccrual principal balances of $448,000 which have been paid off and brought current, loans charged-off in the amount of $130,000, liquidation of non-accrual loans of $143,000 and increases in nonaccrual principal balances of $3,003,000. The increase in nonaccrual loans in the first nine months of 1998 was due primarily to six commercial loan customers and one mortgage loan customer. Management does not believe that this increase in non-accrual loans is indicative of a failing local economy and that this change did not result from any change in underwriting standards. Nonperforming assets at September 30, 1998 totaled $2,707,000, up from $1,344,000 at June 30, 1998. The third quarter increase in nonperforming 17 assets of $1,362,000 resulted from loans being brought current in the amount of $323,000, loans charged-off in the amount of $106,000 and increases in nonaccrual loans of $1,792,000. The increase in nonaccrual loans in the third quarter of 1998 was due primarily to three commercial loan customers and one consumer loan customer. The level of nonperforming assets at September 30, 1998 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 09/30/98 06/30/98 03/31/98 12/31/97 -------- -------- -------- -------- Nonperforming Assets: Nonaccrual loans $2,707 $1,344 $1,078 $ 425 Restructured loans 0 0 0 0 Other Real Estate Owned 0 0 0 90 -------- -------- -------- -------- Total Nonperforming Assets $2,707 $1,344 $1,078 $ 515 ======== ======== ======== ======== Reserve for possible loan losses to total nonperforming assets 172.7% 336.6% 404.4% 809.3% ======== ======== ======== ======== Accruing loans past due 90 days $ 295 $ 421 $ 645 $ 461 ======== ======== ======== ======== Potential problem loans are those loans identified on Management's watch list in which Management has some doubt as to the borrower's ability to comply with the present repayment terms and loans which Management is actively monitoring due to changes in the borrower's financial condition. At September 30, 1998, potential problem loans totaled $4,590,000, a decrease of $4,174,000 from the December 31, 1997 balance. The decrease in potential problem loans during 1998 is primarily due to a reduction in the gross amount of potential problem loans plus transfers of potential problem loans to nonaccrual status. Non-performing and potential problem loans at September 30, 1998 are primarily comprised of three large creditors that the Bank is reviewing. Approximately $3,300,000 of these loan balances relates to the extension of credit to a company that has a significant amount of business activity in Southeast Asia. The Bank is monitoring these credits while the creditor is pursuing potential equity partners. Another $1,200,000 in these loans relates to credit extended to finance the development of a single-family dwelling subdivision. These credits are being monitored by management as the creditor liquidates their position through home sales. Another $1,300,000 of these loans relates to the extension of credits to a recreational entertainment center. These credits are being monitored by management which has noted an increase in net earnings for the first, second and third quarters of 1998. 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, 1998, there are no significant concentrations of credit in the loan portfolio. The Corporation had outstanding loan and credit commitments to make loans totalling $80,029,000 and $68,706,000 at September 30, 1998 and December 31,1997, respectively. The increase in outstanding loan commitments 18 results in part from an increase in the unused portion of home equity lines of credits from a home equity loan sale program in the second and third quarters of 1998. Mortgage and commercial construction loan demand increased in the second and third quarters of 1998 as seasonal weather conditions improved and the construction season moved forward. Consumer loan demand increased in the second and third quarters as demand for home improvement and automobile loans increased. Total deposits increased $22,653,000 during the first nine months to $433,308,000. Non-interest bearing deposits increased to $74,453,000, at September 30, 1998 for an increase of $5,978,000, while interest bearing deposits climbed to $358,765,000 for an increase of $16,675,000. Federal funds purchased and securities sold under agreements to repurchase increased $7,272,000 during the first nine months of 1998. 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 September 30, 1998, short-term security investments with maturities of one year or less totalled $28,721,000 which represented 24.4% of total securities. Adding cash and due from banks of $22,054,000 and Federal funds sold and other interest bearing instruments of $3,936,000, total liquid assets represented 10.4% of total assets. The Corporation's subsidiary bank has established short-term lines of credit at correspondent banks and the Federal Home Loan Bank in the amount of $37,800,000. CAPITAL RESOURCES LNB Bancorp, Inc. continues to maintain a strong capital position. Total shareholders' equity increased to $48,168,000, at September 30, 1998. The increase resulted primarily from $5,258,000 of net income generated from the first nine months of operations less dividends to shareholders of $2,515,000. The decrease in interest rates experienced in the first three quarters of 1998 has caused an increase in the market value of available for sale securities which resulted in an increase in shareholders' equity within accumulated other comprehensive income of $563,000 for the nine months ended September 30, 1998. As of September 30, 1998, the LNB Bancorp, Inc. held 100,000 shares of common stock as treasury stock. LNB Bancorp, Inc. purchased 2,004 of these shares in the first quarter of 1998 and 97,996 shares in 1997 for a total cost of $2,900,000. The Corporation continues to monitor growth to stay within the constraints established by the regulatory authorities. Under Federal banking regulations, an institution is deemed to be well-capitalized if it has a Risk-based Tier 1 capital ratio of 6.00 percent or greater, a Risk-based Total capital ratio of 10.00 percent or greater and a Leverage ratio of 19 5.00 percent or greater. The Corporation's Risk-based capital and Leverage ratios, along with the ratios required to be adequately capitalized, have exceeded the ratios for a well-capitalized financial institution for all periods presented. The Corporation's capital and leverage ratios as of September 30, 1998 and 1997 follow. September 30 ----------------- 1998 1997 ------ ------ Tier I capital ratio 12.44% 12.81% Required Tier I capital ratio 4.00% 4.00% Total capital ratio 13.66% 14.04% Required total capital ratio 8.00% 8.00% Leverage ratio 8.66% 8.70% 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 was $20,752,000 for the first nine months of 1998 for an increase of $1,990,000 when compared to the first nine months of 1997. Increased loan income was the result of the net increase in the loan portfolio of $30,561,000 offset slightly by decreases in interest rates. Interest and dividends on securities was $5,469,000 for the first nine months of 1998 for an increase of $544,000 over the same period in 1997. Interest and dividends on securities represented 19.3% of total interest income at September 30, 1998 compared to 19.1% at September 30, 1997. Interest on Federal funds sold and other interest bearing instruments was $112,000 at September 30, 1998 compared to $63,000 at September 30, 1997. The increase resulted from increases in the average balances invested in these forms of financial instruments which was partially offset by lower interest rates. Total interest expense increased by $970,000 when compared to the first nine months of 1997. The purchase of three branch offices from KeyBank National Association on September 15, 1997 increased the volume of Checkinvest accounts and statement savings and certificates of deposit, contributing to the increase in total interest expense in 1998 as compared to 1997. Also, total interest expense for the first nine months of 1998 was impacted by decreases in interest rates paid on Checkinvest, Moneymarket and certificate of deposit accounts plus repurchase agreements when compared to the first nine months of 1997. Total other income increased by $875,000 when compared to the first nine months of 1997. This increase resulted from increases in income from Trust fees of $403,000, increases in service charges of $303,000 and increases in other charges, exchanges and fees of $156,000. The increase in Trust fees results in part by the realization of certain one-time fee income and from increases in the volume of Trust assets under management. The increase in service charges is due, in part, to reevaluating the assessment of transaction account charges. The increase in other charges, exchanges and fees is the result of pricing increases in credit card and 20 merchant fees and increases in ATM fees. Other operating income increased by $13,000. 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, 1998 was $13,805,000, 7.3% above the first nine months of 1997. This increase was due primarily to certain one-time consulting expenses incurred in the first nine months of 1998, increases in salaries and benefits, increases in credit card and merchant expenses plus the operating expenses of two additional branch offices acquired from KeyBank and the related intangible amortization expenses. The effective tax rate decreased from 34.4% during the first nine months of 1997 to 34.1% during the first nine months of 1998. The decrease in the effective tax rate is due primarily to the decrease in the ratio of tax exempt interest income to total interest income. Net income was $5,258,000 and $4,780,000 for the nine months ended September 30, 1998 and 1997, respectively. Basic and diluted earnings per share after adjusting for the two percent stock dividend in 1997 was $1.27 and $1.14 for the nine months ended September 1998 and 1997, respectively. 4. YEAR 2000 ISSUE Several of the Corporation's and Bank's regulators including the Securities and Exchange Commission, Federal Reserve Board, and the Office of the Comptroller of Currency have issued guidance relative to the management and disclosures for year 2000 issues. A discussion of the year 2000 issue as it relates to the Corporation, the Bank and their customers, suppliers and vendors follows. The Corporation has formed a strategic task force to perform a comprehensive review of its computer systems to identify the systems that could be affected by the "Year 2000" issue and has developed an implementation plan to resolve the issue. The Year 2000 problem is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Corporation's programs that have time sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. The Corporation expects to incur internal staff costs, consulting, and other expenses to identify, correct, and test the systems for the year 2000 compliance issue. The Corporation estimates that compliance costs for the year 2000 issue from 1998 through 1999 will not exceed $150,000. The Corporation continues to evaluate appropriate courses of corrective action, including replacement of certain systems whose associated costs would be recorded as assets and amortized. Accordingly, the Corporation does not expect that year 2000 compliance costs to be expensed over the next two years to have a material effect on the financial position, liquidity or results of operations. To date, the Corporation is in the process of obtaining formal notifications from all of its major vendors and suppliers that their systems are year 2000 compliant. The Corporation is well on its way in the testing and evaluation of internal and external systems for year 2000 compliance. The Corporation plans to complete testing of internal mission critical systems by December 31, 1998. The Corporation is performing a customer risk assessment relative to Year 2000 issues. The Corporation's customer awareness program includes providing: seminars to the business 21 and non-profit entities, Year 2000 information on statements and maintaining a telephone number for customer inquiries. The Corporation provides quarterly updates to the Board of Directors regarding the status of the year 2000 issue. The project completion date for the year 2000 issue is slated for June, 1999. The "Year 2000 Computer Problem" creates risk for the Corporation from unforeseen problems in its own computer systems and from third parties with whom the Corporation deals on financial transactions. Such failures of the Corporation, and/or third parties' computer systems could have a material impact on the Corporation's ability to conduct its business, and especially to process and account for the transfer of funds electronically. Based upon testing of mission critical hardware and software, the Corporation does not anticipate that it will have to rely on a contingency plan relating to these areas. However, the Corporation is in the process of developing a contingency plan that would cover the failure of mission critical hardware and software. The contingency plan is also being developed to cover Y2K failure(s) that might result from a failure(s) outside of the control of the Corporation; such as a utility company failure. The Corporation's contingency plan for Y2K failure of its core processing systems will be to handle and process customer transactions manually until the system failure is corrected. The Corporation is reviewing all areas; such as staffing, supplies, security and liquidity to determine all requirements to handle and process customer transactions in a manual environment. 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. SFAS NO. 133, "Accounting for Derivative Instruments and Hedging Activities" Implementation date by the Corporation: October 1, 1998 Impact on the Corporation: This Statement establishes comprehensive accounting and reporting requirements for derivative instruments and hedging activities. The statement requires entitles to recognize all derivatives as either assets or liabilities with those instruments measured at fair value. The accounting for gains and losses resulting from changes in fair value of the derivative instrument, depends on the use of the derivative and the type of risk being hedged. This statement is effective for all fiscal quarters of all fiscal years beginning after June 15, 1999. Earlier adoption, however, is permitted. The Corporation adopted SFAS No, 133 on October 1, 1998. The Corporation did not have any hedging activity or derivative instruments prior to September 30, 1998. However, the Corporation elected to reclassify approximately $7 million of Held-to-maturity securities to trading securities and approximately $41 million in Held-to-maturity securities to Available-for-sale securities. The above mentioned security transfers from the Held-to-maturity category at the initial date of adoption shall not call into question the Corporation's intent to hold other debt securities to maturity in the future. The unrealized holding gain on 22 held-to-maturity securities transferred at the initial adoption of SFAS No. 133 will be reported as a transition adjustment to net income or Accumulated Other Comprehensive Income. The cumulative effect of adoption of SFAS No. 133 is as follows: Transfers of Debt Securities from the Held-to-Maturity to the Trading and Available-for-Sale Categories as Part of the Transition to the Standard as of October 1, 1998 (Amounts in Thousands) Before Transition Adjustment ---------------------------- Statement of Financial Position Asset (Liability) ----------------- Carrying Fair Amount Value ------ ------ Transfer to the trading category: Debt Security $ 6,987 $ 7,386 Transfer to available- for-Sale category: Debt Security $40,979 $41,696 Accumulated Other N/A N/A Comprehensive Income (SFAS 115) After Transition Adjustment --------------------------- Statement of Income Financial Position Statement ------------------ --------- Asset Stockholders' Gain (Liability) Equity (Loss) ----------- ------ ------ Transfer to the trading category: Debt Security $ 7,386 N/A $399 Transfer to available- for-Sale category: Debt Security $41,696 N/A $-0- Accumulated Other N/A $717 $-0- Comprehensive Income (SFAS 115) Transition result: In accordance with paragraphs 15(b) and 15(c) of SFAS 115, the unrealized holding gains or losses on the transfer of the held- to-maturity securities to the trading and available-for-sale categories are recorded in earnings and Accumulated Other Comprehensive Income, respectively, as transition adjustments. 23 SFAS No. 134, "Accounting for Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise" Implementation date by the Corporation: January 1, 1999 Impact on the Corporation: This Statement further amends Statement 65 to require that after the securitization of mortgage loans held for sale, an entity engaged in mortgage banking activities classify the resulting mortgage-backed securities or other retained interests based on its ability and intent to sell or hold those investments. After the securitization of a mortgage loan held for sale, any retained mortgage-backed securities shall be classified in accordance with the provisions of Statement 115. However, a mortgage banking enterprise must classify as trading any retained mortgage-backed securities that it commits to sell before or during the securitization process. At the present time, the Corporation has not fully analyzed the effect of the adoption of SFAS No. 134 on the Corporation's consolidated financial statements. However, Management does not believe that the adoption of SFAS No. 134 will have a significant impact on the Corporation's consolidated financial statements. The adoption date of SFAS No. 134 will be determined after the pronouncements impact has been fully analyzed. This analysis will be completed prior to December 31, 1998. 24 PART I - OTHER INFORMATION ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market Risk Market risk is the risk of loss in a financial instrument arising from adverse changes in market indices such as interest rates, foreign exchange rates and equity prices. The Corporation's principal market risk exposure is interest rate risk, with no material impact on earnings from changes in foreign exchange rates or equity prices. There have been no material changes in the asset and liability mix of the Corporation since December 31, 1997, which would impact the Corporation's level of market risk. Interest rate risk is the exposure to changes in market interest rates. Interest rate sensitivity is the relationship between market interest rates and net interest income due to the repricing characteristics of assets and liabilities. The Corporation monitors the interest rate sensitivity of its on - and - off balance sheet positions by examining its near-term sensitivity and its longer term gap position. With the Federal Reserve Board's recent announcements to reduce the federal funds rate to 5.25% on September 29, 1998 and then to 5.00% on October 15, 1998, the Corporation reduced its prime lending rate from 8.50% to 8.25% and then to 8.00%. The Corporation anticipates a slight reduction in net interest margin. Corporate management does not anticipate any significant changes in the Corporation's market risk or interest rate risk profiles in the next year. 25 Part II - OTHER INFORMATION ITEM 1 - Legal Proceedings None ITEM 2 - Changes in Securities None ITEM 3 - Defaults Upon Senior Securities None ITEM 4 - Submission of Matters to a Vote of Security Holders None ITEM 5 - Other Information None ITEM 6 - Exhibits and Reports on Form 8-K: (a) Exhibit (11) - Computation of Shares Used for Earnings Per Share Calculation. Exhibit (19) - Third Quarter Report to Shareholders of LNB Bancorp, Inc., September 30, 1998 - EDGAR Version. (b) Exhibit (27) - Financial Data Schedule. (c) Reports on Form 8-K There were no reports on Form 8-K filed for the nine months ended September 30, 1998. 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: October 27, 1998 /s/ Gregory D. Friedman _________________________ Gregory D. Friedman, CPA Senior Vice President, Chief Operating Officer and Chief Financial Officer Date: October 27, 1998 /s/ Mitchell J. Fallis _________________________ Mitchell J. Fallis, CPA Vice President and Chief Accounting Officer 26 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 Footnote 2 Earnings Per Share on pages 12- 13 of this Form 10Q is incorporated by reference. (13) Third Quarter Report to Shareholders of LNB Bancorp, Inc. September 30, 1998 - EDGAR Version. (27) Financial Data Schedule. 27 LNB Bancorp, Inc. Exhibit to Form 10 - Q (For the nine months ended September 30, 1998) S - K Reference Number (13) Third Quarter Report to Shareholders of LNB Bancorp, Inc. (dated September 30, 1998) EDGAR Version DESCRIPTION: Three sided pamphlet: Outside cover third quarter 1998 LNB Bancorp, Inc., "Familiar Faces...Friendly places" among 15 assorted pictures. Inside contains: Message to shareholders, Unaudited EDGAR version Consolidated Balance Sheets for period ending September 30, 1998 and September 30, 1997, respectively, unaudited EDGAR version Consolidated Statements of Income for the Nine Months ended September 30, 1998 and September 30, 1997, respectively and the list of Banking Offices & ATMs. 28 Message to Our Shareholders It's a pleasure to report that we are well on our way to another successful year of operations at LNB Bancorp, Inc. and its wholly owned subsidiary, Lorain National Bank. As of September 30, 1998 we have achieved significant growth in earnings, total assets, total loans and shareholders' equity. Earnings have increased 10 percent for the nine months ended September 30, 1998, compared to the same period one year ago. Consolidated net income for the first nine months of 1998 reached $5,258,000, up from $4,780,000 for the comparative period in 1997. Basic earnings per share for the first nine months of 1998 reached $1.27, a 12 percent increase over the $1.14 amount reported for the same period in 1997. Earnings for the first nine months of 1998 were higher than a year ago because of higher net interest income and other non-interest income, offset in part by higher operating expenses and loan loss provision. Total assets rose 5% to $523.6 million, as of September 30, 1998, up $26.8 million from September 30, 1997. Net loans increased by $29.6 million from one year ago to $357.4 million at September 30, 1998. The loan increase was the result of a home equity loan sale program plus increases in commercial, mortgage and consumer lending. Total deposits increased by 3% to $433.3 million, up $11.2 million from one year ago. Increases in demand, savings and public fund certificates of deposit accounted for the deposit increase. Lorain National Bank operates twenty-one retail branches serving nine local communities. Cash dividends declared per share for the first nine months of 1998 increased over 24% compared to the same period last year. The year to date cash dividends declared per share in 1998 increased by $.12 per share to $.61 per share, up from $.49 per share in 1997. Total shareholders' equity increased $3.8 million to $48.2 million during the twelve months ended September 30, 1998. The percentage of total equity to total assets reached 9.2% at September 30, 1998. As a locally owned, independent bank and holding company, we look forward to providing personal service to our growing four publics - our customers, shareholders, employees, and community. Information about Lorain National Bank's financial results, its products and services and press releases can be accessed at our new World Wide Web site on the Internet at www.4LNB.com. We thank you for your continued support and look forward to addressing you after the completion of another year of successful operations. Sincerely, /s/ James F. Kidd /s/ Stanley G. Pijor _______________________ ______________________ James F. Kidd Stanley G. Pijor President & Chief Executive Officer Chairman of the Board 29 TOTAL ASSETS millions of dollars (A Total Assets graph follows in printed version with assets on the x- axis and years 1994 through 1998 on the y-axis. The graph is a vertical bar graph. The co-ordinates, by year, which are presented in the table below are plotted on the previously described grid.) TOTAL SHAREHOLDERS' EQUITY millions of dollars (A Total Shareholders' Equity graph follows in printed version with shareholder's equity on the x-axis and years 1994 through 1998 on the y-axis. The graph is a vertical bar graph. The co-ordinates, by year, which are presented in the table below are plotted on the previously described grid.) BASIC EARNINGS PER SHARE dollars (A Basic Earnings Per Share graph follows in printed version with earnings per share on the x-axis and years 1994 through 1998 on the y-axis. The graph is a vertical bar graph. The co-ordinates, by year, which are presented in the table below are plotted on the previously described grid.) Total Shareholders' Basic Earnings Total Assets Equity Per Share Year Millions of Dollars Millions of Dollars Dollars 1998 $523.6 $48.2 $1.27 1997 $496.8 $44.4 $1.14 1996 $433.6 $43.3 $1.02 1995 $413.5 $40.0 $0.86 1994 $399.4 $36.9 $0.80 *Adjusted for stock dividends and splits 30 Consolidated Balance Sheets September 30 ------------------------------ 1998 1997 -------------- -------------- ASSETS: Cash and Due from Banks $ 22,054,000 $ 20,842,000 Federal Funds Sold and Other Interest-Bearing Instruments 3,936,000 9,561,000 Securities Available for Sale 46,914,000 15,383,000 Securities Held to Maturity 71,003,000 100,677,000 Loans 361,799,000 331,844,000 Reserve for Possible Loan Losses (4,675,000) (4,305,000) - -------------------------------------------------------------------------- NET LOANS 357,124,000 327,539,000 - -------------------------------------------------------------------------- Premises, Equipment and Intangible Assets, net 15,562,000 16,597,000 Other Assets 7,018,000 6,180,000 - -------------------------------------------------------------------------- TOTAL ASSETS $523,611,000 $496,779,000 - -------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY: Non-Interest Bearing Deposits $ 74,543,000 $ 65,549,000 Interest-Bearing Deposits 358,765,000 356,554,000 - -------------------------------------------------------------------------- TOTAL DEPOSITS 433,308,000 422,103,000 - -------------------------------------------------------------------------- Securities Sold under Repurchase Agreements and Other Short-Term Borrowings 36,222,000 25,930,000 Federal Home Loan Bank Advances 2,045,000 1,095,000 Accrued Taxes, Expenses and Other Liabilities 3,868,000 3,226,000 - -------------------------------------------------------------------------- TOTAL LIABILITIES 475,443,000 452,354,000 - -------------------------------------------------------------------------- Common Stock 4,222,000 4,222,000 Additional Capital 22,602,000 22,598,000 Retained Earnings 23,681,000 20,141,000 Accumulated Other Comprehensive Income 563,000 47,000 Treasury Stock at Cost (2,900,000) (2,583,000) - -------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 48,168,000 44,425,000 - -------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $523,611,000 $496,779,000 - -------------------------------------------------------------------------- (LOGO) LNB Bancorp, Inc. and its subsidiary Lorain National Bank 31 Consolidated Statements of Income Nine Months Ended September 30 ---------------------------- 1998 1997 ------------- ------------- INTEREST INCOME: Interest and Fees on Loans $22,752,000 $20,762,000 Interest and Dividends on Securities 5,468,000 4,925,000 Interest on Federal Funds Sold and Other Interest-Bearing Instruments 113,000 63,000 - -------------------------------------------------------------------------- TOTAL INTEREST INCOME 28,333,000 25,750,000 - -------------------------------------------------------------------------- INTEREST EXPENSE: Interest on Deposits 9,448,000 8,480,000 Interest on Securities Sold Under Repurchase Agreements and Other Short-Term Borrowings 882,000 925,000 Interest on Federal Home Loan Bank Advances 98,000 53,000 - -------------------------------------------------------------------------- TOTAL INTEREST EXPENSE 10,428,000 9,458,000 - -------------------------------------------------------------------------- NET INTEREST INCOME 17,905,000 16,292,000 Provision for Possible Loan Losses 1,263,000 375,000 - -------------------------------------------------------------------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 16,642,000 15,917,000 - -------------------------------------------------------------------------- OTHER INCOME: Trust Department Income 1,358,000 955,000 Fees and Service Charges 3,704,000 3,245,000 Gains From Sales of Loans and Securities -0- -0- Other Operating Income 49,000 36,000 - -------------------------------------------------------------------------- TOTAL OTHER INCOME 5,111,000 4,236,000 - -------------------------------------------------------------------------- OTHER EXPENSES: Salaries and Employee Benefits 6,576,000 6,321,000 Net Occupancy Expense of Premises 1,005,000 957,000 Furniture and Equipment Expenses 1,617,000 1,719,000 Supplies and Postage 790,000 725,000 Ohio Franchise Tax 353,000 367,000 Other Operating Expenses 3,464,000 2,776,000 - -------------------------------------------------------------------------- TOTAL OTHER EXPENSES 13,805,000 12,865,000 - -------------------------------------------------------------------------- INCOME BEFORE FEDERAL INCOME TAXES 7,973,000 7,288,000 Federal Income Taxes 2,690,000 2,508,000 - -------------------------------------------------------------------------- NET INCOME $5,258,000 $4,780,000 - -------------------------------------------------------------------------- BASIC EARNINGS PER SHARE $ 1.27 $ 1.14 - -------------------------------------------------------------------------- DILUTED EARNINGS PER SHARE $ 1.27 $ 1.14 - -------------------------------------------------------------------------- DIVIDENDS DECLARED PER SHARE $ .61 $ .49 ========================================================================== 32 Back Cover: White background with black lettering Four column format Banking Offices and ATMS ATM service available wherever you see this symbol ** Lorain Banking Offices Elyria Banking Offices Main Office **Cleveland Street Office 457 Broadway 801 Cleveland Street Lorain, Ohio 44052 Elyria, Ohio 44035 (440)244-7185 (440)365-8397 **Sixth Street Drive-In Office **Lake Avenue Office 200 Sixth Street 42935 North Ridge Road Lorain, Ohio 44052 Elyria Township, Ohio 44035 (440)244-7242 (440)233-7196 **Cooper Foster Park **Midway Mall Office Road Office 6395 Midway Mall Blvd. 1920 Cooper Foster Park Rd Elyria, Ohio 44035 Lorain, Ohio 44053 (440)324-6530 (440)282-1252 **Second Street Office **Kansas Avenue Office 221 Second Street 1604 Kansas Avenue Elyria, Ohio 44035 Lorain, Ohio (440)323-4621 (440)288-9151 Village of LaGrange **Oberlin Avenue Office Banking Office 3660 Oberlin Avenue **Village of LaGrange Office Lorain, Ohio 44053 546 North Center Street (440)282-9196 Village of LaGrange, Ohio 44050 (440)355-6734 **Pearl Avenue Office 2850 Pearl Avenue Oberlin Banking Office Lorain, Ohio 44055 **Oberlin Office (440)277-1103 40 E. College Street Oberlin, Ohio 44074 **West Park Drive Office (440)775-1361 2130 West Park Drive Lorain, Ohio 44053 Kendal at Oberlin Office (440)989-3131 600 Kendal Drive Oberlin, Ohio 44074 Amherst Banking Office (440)774-5400 **Amherst Office 1175 Cleveland Avenue Olmsted Township Amherst, Ohio 44001 Banking Office (440)988-4423 **Olmsted Township Office 27095 Bagley Road Avon Lake Banking Office Olmsted Township, Ohio 44138 **Avon Lake Office (440)235-4600 240 Miller Road Avon Lake, Ohio 44012 The Renaissance Office (440)933-2186 26376 John Road Olmsted Township, Ohio 44138 (440)427-0041 33 Vermilion Banking Office Community-Based Automated **Vermilion Office Teller Machine Locations 4455 East Liberty Avenue **Captain Larry's Marathon Vermilion, Ohio 44089 1317 State Route 60 (440)967-3124 Vermilion, Ohio Westlake Banking Offices **Convenient Food Mart **Crossing of Westlake, Office 5375 West Erie Avenue 30210 Detroit Road Lorain, Ohio Westlake, Ohio 44145 (440)892-9696 **Gateway Plaza Westlake Village Office 3451 Colorado Avenue 28550 Westlake Village Drive Lorain, Ohio Westlake, Ohio 44145 (440)808-0229 **Lakeland Medical Center 3700 Kolbe Road Other Offices Lorain, Ohio Executive Offices 457 Broadway **Lorain County Lorain, Ohio 44052 Community College (440)244-7123 1005 N. Abbe Road Elyria, Ohio Administration 457 Broadway **Lorain Plaza Lorain, Ohio 44052 Shopping Center (440)244-7253 1147 Meister Road Lorain, Ohio Operations 2130 West Park Drive **Lowe's Home Lorain, Ohio 44053 Improvement Warehouse (440)989-3315 620 Midway Boulevard Elyria, Ohio Human Resources 2130 West Park Drive **Midway Mall Food Court Lorain, Ohio 44053 3343 Midway Mall Blvd. (440)989-3139 Elyria, Ohio Marketing **State Route 58 457 Broadway 7580 Leavitt Road Lorain, Ohio 44052 Amherst, Ohio (440)244-7332 Purchasing 2150 West Park Drive Lorain, Ohio 44053 (440)989-3260 All Other Departments & Information Not Listed Lorain (440)244-6000 Logos for FDIC Insured, Federal Home Toll Free(800)860-1007 Loan Bank System, Equal Housing Lender Elyria/Cleveland (440)236-5047 and LNB Bancorp, Inc. 34 LNB Bancorp, Inc. Exhibit to Form 10 - Q (For the nine months ended September 30, 1998) 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-31-1998 JAN-01-1998 SEP-30-1998 22,054 3,936 0 0 46,914 71,003 70,227 361,799 4,675 523,611 433,308 36,222 3,868 2,045 4,222 0 0 43,946 523,611 22,752 5,469 112 28,333 9,448 10,428 17,905 1,263 0 13,805 7,948 5,258 0 0 5,258 1.27 1.27 5.06 2,707 295 0 4,590 4,168 882 126 4,675 4,135 0 540
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