EX-99.1 3 a5261096ex99_1.txt EXHIBIT 99.1 PRESS RELEASE Exhibit 99.1 LNB Bancorp, Inc. Reports Third Quarter Results LORAIN, Ohio--(BUSINESS WIRE)--Oct. 26, 2006--LNB Bancorp, Inc. (NASDAQ:LNBB): -- Net interest margin shows stability on linked quarter basis -- Noninterest income, fee income up from previous quarter -- Commercial loan performance reflects sluggish local economy LNB Bancorp, Inc. (NASDAQ:LNBB) today reported net income of $1,419,000, or $.22 per diluted share, for the third quarter of 2006, compared to $2,157,000, or $.33 per diluted share, for the same quarter a year ago. For the first nine months of 2006, LNB Bancorp earned $4,506,000, down from $4,580,000, in the same period of 2005. The difference in year-over-year earnings was impacted by net interest margin compression in 2006 compared to 2005, and expenses related to investments in market expansion in Lorain and Cuyahoga counties. Earnings per fully diluted share for the first nine months of 2006 were $.70, up from $.69 in the same period of 2005. Management Perspective "We were very encouraged by the stability of the net interest margin on a linked-quarter basis as well as quarter-to-quarter improvement in noninterest income," said Daniel E. Klimas, president and chief executive officer of LNB Bancorp. "Deposits and fee income showed marked improvement from second to third quarter this year, a reflection of our aggressive sales and marketing efforts this year. "A more pronounced slowing of the local economy impacted our commercial loan performance and precipitated an increase in net charge-offs in the third quarter, however we are optimistic that the investments we have made in expanding our presence in Lorain and Cuyahoga counties and diversifying our business mix will begin to show positive benefits." Third Quarter Performance Net Interest Income LNB Bancorp's net interest income for the third quarter of 2006 was $7,320,000, compared to $7,470,000 for the same period last year. This decline was due to higher funding costs and slow asset growth during the third quarter of 2006. However, on a linked quarter basis, third quarter net interest income was up 1.7 percent from the second quarter of 2006. Net interest income for the first nine months of 2006 was $21,719,000, a 2.9 percent decline from $22,359,000 reported for the same period a year ago. Net Interest Margin The net interest margin for the third quarter of 2006 was 3.83 percent, compared to 3.97 percent for the third quarter of 2005. After a 17 basis point decline between the fourth quarter of 2005 and the first quarter of 2006, the net interest margin has been fairly stable in the second and third quarters of 2006. In the third quarter 2006 the net interest margin of 3.83 percent declined by only two basis points from the second quarter of 2006. The net interest margin for the first nine months of 2006 was 3.86 percent versus 4.09 percent for the first nine months of 2005. "The positive impact of a rising rate environment on the commercial and home equity loan portfolios was offset by lower noninterest bearing demand deposits and a shift of interest-bearing deposits from low-cost savings and interest-bearing demand deposits to higher-cost money market and retail time deposits. The flat yield curve and continuing competitive pricing pressures also contributed to the decline in net interest margin," said Klimas. Portfolio Loans Portfolio loans at September 30, 2006 were $607.0 million, up 4.2 percent on an annualized basis from December 31, 2005 and up 2.1 percent from September 30, 2005. Commercial loan growth continues to be slow, reflecting the Lorain County economy and the effect of local competition. Total commercial loans were $366.8 million at September 30, 2006 as compared to $366.0 million at September 30, 2005. However, retail lending continued to grow in the third quarter 2006 and at September 30, 2006, mortgage loans, after a period of runoff, have grown 5.8% percent over the same period in 2005. Deposits Deposits at September 30, 2006 were $688.5 million, compared to $640.2 million at year-end 2005 and $655.7 million a year ago. The increase in deposits in the first nine months of 2006 as compared to year-end 2005 and the same period last year, reflect positive trends in money market accounts and retail time deposits, supplemented by growth in public time deposits and brokered time deposits. "This is another reflection of the benefits of our aggressive retail efforts," said Klimas. Asset Quality Management continues its focus on aggressively managing asset quality in a challenging economic environment. Indicators were mixed in the third quarter, reflecting the slowing local economy and efforts to manage the classified loan portfolio. Potential problem loans, which are classified loans, excluding nonperforming loans, which peaked at about $21.6 million at December 31, 2004, have declined to $14.6 million at September 30, 2006. This current balance compares to $13.9 million at June 30, 2006 and $14.4 million at December 31, 2005. However, the net charge-off trend, after several positive quarters, deteriorated in the third quarter with net charge-offs of $863,000, or .57 percent of average loans annualized, compared to $203,000 or .14 percent average loans annualized for third quarter 2005. On a year-to-date basis, 2006 net-charge-offs were $1,232,000, .28 percent of average loans annualized, compared to $594,000 or .14 percent of average loans annualized in the first nine months of 2005. Nonperforming loans at September 30, 2006 were $7,023,000, representing 1.16 percent of total loans, compared to $7,452,000 or 1.25 percent of total loans at September 30, 2005. While this year-over-year comparison is improved, the September 30, 2006 total is up from $6,279,000 from June 30, 2006. This quarterly increase is attributable to an increase in nonperforming commercial loans. The provision for loan losses for the third quarter and first nine months of 2006 was $600,000 and $915,000 respectively, as compared to $300,000 and $1,098,000 for the same periods of 2005. At September 30, 2006, the allowance for loan losses was $6.3 million. The allowance for loan losses to total loans was 1.04 percent and provided 90 percent coverage of nonperforming loans at September 30, 2006, compared to $7.9 million, or 1.33 percent and 106 percent, respectively, at September 30, 2005, and $6.6 million, or 1.13 percent and 102 percent, respectively, at December 31, 2005. Noninterest Income Noninterest income was $2,453,000 for the third quarter 2006, compared to $2,608,000 for the same period in 2005. The difference is due in part to the fact that the third quarter of 2005 included $242,000 in revenue from the Corporation's mortgage subsidiary which was closed at year-end 2005. On a linked quarter basis, noninterest income in the third quarter of 2006 increased $76,000, or 3.2 percent from the second quarter of 2006. The two biggest components of noninterest income are deposit service charges and trust and investment management services. Deposit service charges continued to improve throughout the third quarter and were $1,224,000 for the period as compared to $1,152,000 in the same period last year, and $1,142,000 in the second quarter of 2006. Trust and investment management services were $482,000 for the third quarter 2006 as compared to $555,000 for the same period in 2005, and $546,000 for the second quarter of 2006. Noninterest Expense Noninterest expense was $7,279,000 in the third quarter 2006, compared to $6,764,000 for the third quarter of last year, an increase of 7.6 percent. Increases in salaries and benefits, net occupancy and marketing and public relations account for most of this increase. These expenses relate mostly to efforts to invest in expanding the bank's presence in higher growth markets. Salaries and benefit expense in the third quarter of 2006 were $3,770,000, an increase of 10.4 percent over the same period in 2005. This increase reflects the addition of new banking associates in Cuyahoga County, the staff at the new North Ridgeville office, the impact of equity based compensation expense and normal salary increases. On a linked quarter basis, noninterest expense in the third quarter of 2006 was up a modest 1.2 percent from the second quarter of 2006. Return on Assets and Equity For the third quarter of 2006, return on average assets was .68 percent, compared to 1.06 percent for the third quarter of 2005. Return on average equity for the third quarter of 2006 was 8.24 percent, compared to 12.09 percent for the third quarter of 2005. On a year-to-date basis, return on average assets was .74 percent in 2006 as compared to .77 percent in 2005. Return on average equity for the first nine months of 2006 was 8.80 percent, compared to 8.66 percent in 2005. The average number of fully diluted common shares used in the year-to-date calculation was 6,467,878 in 2006 as compared to 6,635,780 in 2005. This decline in the number of outstanding shares is the result of the Company's stock repurchase program activity in the last 12 months. About LNB Bancorp, Inc. LNB Bancorp, Inc. is an $831.5 million financial holding company. Its major subsidiary, The Lorain National Bank, is a full-service commercial bank, specializing in commercial, personal banking services, residential mortgage lending and investment and trust services. Lorain National Bank serves customers through 21 retail-banking locations and 25 ATMs in Lorain, eastern Erie and western Cuyahoga counties. North Coast Community Development Corporation is a wholly owned subsidiary of The Lorain National Bank. Brokerage services are provided by the bank through an agreement with Investment Centers of America. For more information about LNB Bancorp, Inc., and its related products and services or to view its filings with the Securities and Exchange Commission, visit us at http://www.4lnb.com. This press release contains forward-looking statements within the meaning of the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of 1995. Terms such as "will," "should," "plan," "intend," "expect," "continue," "believe," "anticipate" and "seek," as well as similar expressions, are forward-looking in nature. Actual results and events may differ materially from those expressed or anticipated as a result of risks and uncertainties which include fluctuations in interest rates, inflation, government regulations, and economic conditions and competition in the geographic and business areas in which LNB Bancorp, Inc. conducts its operations, as well as the risks and uncertainties described from time to time in LNB Bancorp's reports as filed with the Securities and Exchange Commission. We undertake no obligation to review or update any forward-looking statements, whether as a result of new information, future events or otherwise. Consolidated Balance Sheets September 30, 2006 December 31, 2005 ----------------------- ------------------- (unaudited) (Dollars in thousands except share amounts) ASSETS Cash and due from Banks $23,031 $23,923 Federal funds sold and short-term investments - - Securities: Available for sale, at fair value 160,228 151,629 Federal Home Loan Bank and Federal Reserve Stock 3,204 3,645 ----------------------- ------------------- Total securities 163,432 155,274 ----------------------- ------------------- Loans: Loans held for sale 2,116 2,586 Portfolio loans 607,036 588,425 Allowance for loan losses (6,304) (6,622) ----------------------- ------------------- Net loans 602,848 584,389 ----------------------- ------------------- Bank premises and equipment, net 12,435 10,833 Other real estate owned 1,702 432 Bank owned life insurance 14,490 13,935 Goodwill and intangible assets, net 3,198 3,321 Accrued interest receivable 4,032 3,053 Other assets 6,376 5,961 ----------------------- ------------------- Total Assets $831,544 $801,121 ======================= =================== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits Demand and other noninterest-bearing $80,138 $87,597 Savings, money market and interest-bearing demand 278,132 265,831 Certificates of deposit 330,218 286,788 ----------------------- ------------------- Total deposits 688,488 640,216 ----------------------- ------------------- Short-term borrowings 17,975 32,616 Federal Home Loan Bank advances 50,088 53,896 Accrued interest payable 2,672 2,126 Accrued taxes, expenses and other liabilities 3,750 3,861 ----------------------- ------------------- Total Liabilities 762,973 732,715 ======================= =================== Shareholders' Equity Common stock, par value $1 per share, authorized 15,000,000 shares, issued 6,771,867 shares at September 30, 2006 and December 31, 2005 6,772 6,772 Additional paid-in capital 26,370 26,334 Retained earnings 43,966 42,945 Accumulated other comprehensive loss (2,445) (2,996) Treasury shares at cost, 328,194 shares at September 30, 2006 and 250,694 shares at December 31, 2005 (6,092) (4,649) ----------------------- ------------------- Total Shareholders' Equity 68,571 68,406 ----------------------- ------------------- Total Liabilities and Shareholders' Equity $831,544 $801,121 ======================= =================== See accompanying notes to consolidated financial statements. Consolidated Statements of Income (unaudited) Three Months Ended Nine Months Ended September 30, September 30, --------------------- --------------------- 2006 2005 2006 2005 ---------- ---------- ---------- ---------- (Dollars in thousands except share and per share amounts) Interest Income Loans $11,164 $9,712 $31,690 $27,847 Securities: U.S. Government agencies and corporations 1,488 1,185 4,249 3,256 State and political subdivisions 124 107 330 333 Other debt and equity securities 49 53 150 155 Federal funds sold and short-term investments 10 38 73 111 ---------- ---------- ---------- ---------- Total interest income 12,835 11,095 36,492 31,702 Interest Expense Deposits: Certificates of deposit, $100 and over 1,864 1,193 4,818 2,696 Other deposits 2,913 1,828 8,073 4,865 Federal Home Loan Bank advances 492 403 1,227 1,387 Short-term borrowings 246 201 655 395 ---------- ---------- ---------- ---------- Total interest expense 5,515 3,625 14,773 9,343 ---------- ---------- ---------- ---------- Net Interest Income 7,320 7,470 21,719 22,359 Provision for Loan Losses 600 300 915 1,098 ---------- ---------- ---------- ---------- Net interest income after provision for loan losses 6,720 7,170 20,804 21,261 Noninterest Income Investment and trust services 482 555 1,537 1,627 Deposit service charges 1,224 1,152 3,334 3,112 Other service charges and fees 504 490 1,444 1,431 Mortgage banking revenue - 242 - 967 Income from bank owned life insurance 187 117 474 426 Other income 56 83 160 337 ---------- ---------- ---------- ---------- Total fees and other income 2,453 2,639 6,949 7,900 Securities gains, net - - 174 Gains on sale of loans - - - 132 Gains (losses) on sale of other assets, net - (31) 2 (32) ---------- ---------- ---------- ---------- Total noninterest income 2,453 2,608 6,951 8,174 Noninterest Expense Salaries and employee benefits 3,770 3,414 10,986 11,653 Furniture and equipment 737 746 2,227 2,281 Net occupancy 484 402 1,413 1,368 Outside services 406 394 1,260 1,224 Marketing and public relations 311 258 1,069 863 Supplies, postage and freight 311 290 912 934 Telecommunications 207 207 577 936 Ohio Franchise tax 207 179 636 561 Electronic banking expenses 160 136 466 400 Other expense 686 738 2,133 2,687 ---------- ---------- ---------- ---------- Total noninterest expense 7,279 6,764 21,679 22,907 ---------- ---------- ---------- ---------- Income before income tax expense 1,894 3,014 6,076 6,528 Income tax expense 475 857 1,570 1,948 ---------- ---------- ---------- ---------- Net Income $1,419 $2,157 $4,506 $4,580 ========== ========== ========== ========== Net Income Per Common Share Basic $0.22 $0.33 $0.70 $0.69 Diluted 0.22 0.33 0.70 0.69 Dividends declared 0.18 0.18 0.54 0.54 Average Common Shares Outstanding Basic 6,450,086 6,625,086 6,468,032 6,635,752 Diluted 6,450,235 6,625,168 6,468,291 6,635,780 See accompanying notes to consolidated financial statements. LNB Bancorp, Inc. Supplemental Financial Information (Unaudited - Dollars in thousands except Share and Per Share Data) Three Months Ended Nine Months Ended ------------------------------------------------- 30-Sep June 30, 30-Sep 30-Sep 30-Sep 2006 2006 2005 2006 2005 ------------------------------------------------- END OF PERIOD BALANCES Assets $831,544 $823,623 $812,437 $831,544 $812,437 Deposits 688,488 678,016 655,740 688,488 655,740 Portfolio loans 607,036 598,511 594,493 607,036 594,493 Allowance for loan losses 6,304 6,568 7,890 6,304 7,890 Shareholders' equity 68,571 66,858 69,478 68,571 69,478 AVERAGE BALANCES Assets: Total assets $825,815 $810,942 $804,797 $813,846 $790,672 Earning assets 767,769 754,822 751,254 758,100 736,346 Securities 163,810 163,089 157,117 161,663 150,785 Portfolio loans 603,186 589,454 589,684 594,223 580,461 Liabilities and shareholders' equity: Total deposits $681,781 $676,845 $652,513 $673,351 $633,154 Interest bearing deposits 599,254 593,418 561,038 588,831 538,185 Interest bearing liabilities 668,589 653,529 636,721 654,821 619,215 Total shareholders' equity 68,308 67,706 70,804 68,447 70,724 INCOME STATEMENT Net interest income $7,320 $7,196 $7,470 $21,719 $22,359 Net interest income-FTE (1) 7,405 7,243 7,518 21,900 22,512 Provision for loan losses 600 165 300 915 1,098 Noninterest income 2,453 2,377 2,608 6,951 8,174 Noninterest expense 7,279 7,191 6,764 21,679 22,907 Taxes 475 578 857 1,570 1,948 ---------------------------------------------------------------------- Net income 1,419 1,639 2,157 4,506 4,580 ---------------------------------------------------------------------- Total revenue 9,773 9,573 10,078 28,670 30,533 PER SHARE DATA Basic net income per common share $0.22 $0.25 $0.33 $0.70 $0.69 Diluted net income per common share 0.22 0.25 0.33 0.70 0.69 Cash dividends per common share 0.18 0.18 0.18 0.54 0.54 Basic average common shares outstanding 6,450,086 6,475,651 6,625,086 6,468,032 6,635,752 Diluted average common shares outstanding 6,450,235 6,475,602 6,625,168 6,468,291 6,635,780 KEY RATIOS Return on average assets (2) 0.68% 0.81% 1.06% 0.74% 0.77% Return on average common equity (2) 8.24% 9.71% 12.09% 8.80% 8.66% Efficiency ratio 73.84% 74.75% 66.80% 75.14% 74.65% Noninterest expense to average assets (2) 3.50% 3.56% 3.33% 3.56% 3.87% Average equity to average assets 8.27% 8.35% 8.80% 8.41% 8.94% Net interest margin 3.78% 3.82% 3.94% 3.83% 4.06% Net interest margin (FTE) (1) 3.83% 3.85% 3.97% 3.86% 4.09% ASSET QUALITY Nonperforming loans $7,023 $6,279 $7,452 $7,023 $7,452 Other real estate owned 1,702 1,572 399 1,702 399 Total nonperforming assets 8,725 7,851 7,851 8,725 7,851 Net Charge Offs 863 165 203 1,232 594 Total nonperforming loans to total loans 1.16% 1.05% 1.25% 1.16% 1.25% Total nonperforming assets to total assets 1.05% 0.95% 0.97% 1.05% 0.97% Net charge-offs to average loans (2) 0.57% 0.11% 0.14% 0.28% 0.14% Allowance for loan losses 1.04% 1.10% 1.33% 1.04% 1.33% Allowance to nonperforming loans 89.76% 104.60% 105.88% 89.76% 105.88% (1) FTE -- fully tax equivalent at 34% tax rate (2) Annualized CONTACT: For LNB Bancorp, Inc. W. John Fuller, 216-978-7643