Exhibit 99.1
MESSAGE TO OUR SHAREHOLDERS
It’s once again time to report on the progress of LNB Bancorp, Inc., and its subsidiary companies for the second quarter and first six months of 2004. Earnings of $4,236,000 for the first six months of 2004 decreased 6.2% from $4,515,000 in the comparable period of 2003. Basic and diluted earnings per share were $.64 in the first half of 2004 as compared to $.68 in the first six months of 2003 On a quarter-over-quarter basis, second quarter earnings declined from $2,324,000 or $.35 per share in 2003 to $1,980,000 or $.30 in 2004. This represents a 14.3% decline in quarterly basic and diluted earnings per share.
Earnings for the quarter and the six months continue to be affected by historically low interest rates affecting the yields on loans and securities plus continued slow asset growth in our market areas due to weak economic conditions. Recent actions by the Federal Reserve regarding interest rates should increase asset yields later in 2004. Also, plans are being implemented to improve commercial loan growth.
The $105,000 or 1.9% decrease in total noninterest income in the first six months of 2004 as compared to the same period of 2003 was due primarily to reductions in service charges on deposit accounts and the gains on the sale of securities and loans. This was partially offset by increased Investment and Trust Services income and fees from the placement of commercial and mortgage loans with third party lenders. Arrangements with these lenders represent a new strategic initiative that provides for expanded product offerings for customers while not increasing balance sheet risk and providing for a potential source of future revenue.
Total noninterest expenses increased .3% for the first six months of 2004 as compared to 2003. Reductions in salaries and employee benefits plus outside services were offset by continued investments in facilities plus computer and communications technology to support delivery of products and services to customers. These later investments are expected to continue through the remainder of the year.
Dividends declared per share in 2004 were $.36, an increase of 5.9% from the $.34 reported for 2003.
Consolidated assets increased to $760.2 million at June 30, 2004, up $7.1 million or approximately 1% from the year ago levels. Net loans grew to $540.9 million from $520.1 million at June 30, 2004. This $20.8 million increase occurred in commercial loans, home equity lines of credit and purchased consumer loans. This growth was partially offset by a reduction in securities portfolio from $168.9 million to $159.5 million.
Total deposits were unchanged between June 30, 2004 and June 30, 2003. Other borrowings increased $9.7 million to $96.2 million at June 30, 2004.
Total shareholders’ equity on a year to year basis decreased slightly to $68.2 million with 2004 retained earnings offset by increases in unrealized losses on securities.
We appreciate and thank you for your continuing support.
Stanley G. Pijor Chairman of the Board | James F. Kidd President and Chief Executive Officer |
CONSOLIDATED BALANCE SHEETS (unaudited) |
June 30, | ||||||||
(Dollars in thousands) | 2004 | 2003 | ||||||
Assets: | ||||||||
Cash and due from banks | $ | 23,719 | $ | 27,377 | ||||
Federal funds sold and short-term investments | 6,811 | 3,081 | ||||||
Federal Home Loan Bank and Federal Reserve Bank stock, at cost | 3,690 | 3,807 | ||||||
Securities held to maturity, at cost | 20,944 | 4,061 | ||||||
Securities available for sale, at fair value | 128,017 | 157,925 | ||||||
Portfolio loans | 544,367 | 519,758 | ||||||
Loans available for sale | 4,516 | 7,465 | ||||||
Reserve for loan losses | (7,989 | ) | (7,105 | ) | ||||
Net loans | 540,894 | 520,118 | ||||||
Premises, equipment and intangible assets (net) | 15,096 | 13,750 | ||||||
Accrued interest receivable and other assets | 21,013 | 22,966 | ||||||
Total Assets | $ | 760,184 | $ | 753,085 | ||||
Liabilities and Shareholders’ Equity: | ||||||||
Noninterest-bearing deposits | $ | 91,024 | $ | 99,146 | ||||
Interest-bearing deposits | 499,509 | 492,484 | ||||||
Total Deposits | 590,533 | 591,630 | ||||||
Securities sold under repurchase agreements and other short-term borrowings | 18,915 | 17,080 | ||||||
Federal Home Loan Bank advances | 77,301 | 69,425 | ||||||
Accrued interest, taxes, expenses and other liabilities | 5,264 | 6,359 | ||||||
Total Liabilities | 692,013 | 684,494 | ||||||
Common stock | 6,767 | 6,755 | ||||||
Additional capital | 26,141 | 26,116 | ||||||
Retained earnings | 40,545 | 37,933 | ||||||
Accumulated other comprehensive income (loss) | (2,851 | ) | 679 | |||||
Treasury stock, at cost | (2,431 | ) | (2,892 | ) | ||||
Total Shareholders’ Equity | 68,171 | 68,591 | ||||||
Total Liabilities and Shareholders’ Equity | $ | 760,184 | $ | 753,085 | ||||
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Three Months | Six Months | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
(Dollars in thousands) | 2004 | 2003 | 2004 | 2003 | ||||||||||||
Interest Income: | ||||||||||||||||
Interest and fees on loans | $ | 7,913 | $ | 8,308 | $ | 15,706 | $ | 16,510 | ||||||||
Interest and dividends on securities | 1,135 | 1,309 | 2,304 | 2,781 | ||||||||||||
Interest on federal funds sold and short-term investments | 19 | 9 | 33 | 21 | ||||||||||||
Total Interest Income | 9,067 | 9,626 | 18,043 | 19,312 | ||||||||||||
Interest Expense: | ||||||||||||||||
Interest on deposits | 1,607 | 1,883 | 3,221 | 3,934 | ||||||||||||
Interest on Federal Home Loan Bank advances | 528 | 422 | 979 | 829 | ||||||||||||
Interest on securities sold under repurchase agreements and other short-term borrowings | 51 | 47 | 92 | 115 | ||||||||||||
Total Interest Expense | 2,186 | 2,352 | 4,292 | 4,878 | ||||||||||||
Net Interest Income | 6,881 | 7,274 | 13,751 | 14,434 | ||||||||||||
Provision for loan losses | 425 | 570 | 950 | 1,134 | ||||||||||||
Net Interest Income after provision for loan losses | 6,456 | 6,704 | 12,801 | 13,300 | ||||||||||||
Noninterest Income: | ||||||||||||||||
Service charges on deposit accounts | 1,031 | 1,109 | 2,015 | 2,055 | ||||||||||||
Electronic banking fees | 643 | 627 | 1,274 | 1,308 | ||||||||||||
Investment and Trust Services Division income | 486 | 400 | 1,072 | 854 | ||||||||||||
Gain on sale of securities | -0- | 247 | 223 | 450 | ||||||||||||
Income from investments in life insurance | 161 | 193 | 320 | 377 | ||||||||||||
Other service charges, exchanges and fees | 130 | 127 | 241 | 233 | ||||||||||||
Gain on sale of loans | 46 | 79 | 83 | 141 | ||||||||||||
Other noninterest income | 99 | 76 | 224 | 139 | ||||||||||||
Total Noninterest Income | 2,596 | 2,858 | 5,452 | 5,557 | ||||||||||||
Noninterest Expenses: | ||||||||||||||||
Salaries and employee benefits | 2,907 | 2,900 | 5,945 | 6,048 | ||||||||||||
Net occupancy expense of premises | 409 | 377 | 783 | 789 | ||||||||||||
Furniture and equipment expenses | 659 | 611 | 1,329 | 1,160 | ||||||||||||
Card-related expenses | 393 | 344 | 725 | 636 | ||||||||||||
Supplies and postage | 257 | 256 | 509 | 538 | ||||||||||||
Professional services | 300 | 606 | 534 | 824 | ||||||||||||
Marketing and advertising | 314 | 165 | 493 | 405 | ||||||||||||
Ohio franchise tax | 180 | 181 | 368 | 362 | ||||||||||||
Other noninterest expenses | 859 | 642 | 1,568 | 1,459 | ||||||||||||
Total Noninterest Expenses | 6,278 | 6,082 | 12,254 | 12,221 | ||||||||||||
Income Before Income Taxes | 2,774 | 3,480 | 5,999 | 6,636 | ||||||||||||
Income Taxes | 794 | 1,156 | 1,763 | 2,121 | ||||||||||||
Net Income | $ | 1,980 | $ | 2,324 | $ | 4,236 | $ | 4,515 | ||||||||
Per Share Data: | ||||||||||||||||
Basic Earnings Per Share | $ | .30 | $ | .35 | $ | .64 | $ | .68 | ||||||||
Diluted Earnings Per Share | $ | .30 | $ | .35 | $ | .64 | $ | .68 | ||||||||
Dividends Declared Per Share | $ | .18 | $ | .17 | $ | .36 | $ | .34 | ||||||||
LORAIN NATIONAL FINALIZES ACQUISITION AGREEMENT WITH MORTGAGE ONE BANC
Lorain National Bank, the banking subsidiary of LNB Bancorp, Inc. and Mortgage One Banc announced that the two companies have finalized a definitive purchase agreement which enables Lorain National Bank to acquire for cash, Mortgage One Banc, a mortgage company headquartered in Lorain, Ohio. Mortgage One Banc operates through multiple delivery channels in 26 Ohio counties. The transaction is expected to close in August 2004.
“Today is a historic one for our organization,” said James F. Kidd, president and chief executive officer of LNB Bancorp. “This is our first acquisition of this type and is truly an exciting one. We are positioning for growth, and the Mortgage One Banc partnership demonstrates our commitment to improving our product offerings.”
Randy Bevins, Mortgage One Banc’s president and chief executive officer, said “We are pleased to be joining forces with Lorain National Bank and proud to be joining with a company that shares our strong commitment to customers, employees and the community.”
Randy Bevins, President and
Chief Executive Officer,
Mortgage One Banc.
Mortgage One Banc will retain its identity and will continue to operate from its Lorain headquarters. All LNB mortgage employees will be retained and reassigned to other areas of the bank or to Mortgage One Banc. All Mortgage One employees will remain employed as well. Bevins said he is actually adding to staff in expectation of continued growth.
“We feel Mortgage One Banc will substantially improve our presence in the consumer mortgage and retail investment area, with a focus on doing what’s right for our customers – and for those who invest in LNB Bancorp. This is a great opportunity to establish a stronger presence in the mortgage market,” Kidd said.
Bevins will retain his lead role in the operation of Mortgage One Banc. “We share similar philosophies where the customer drives our business. In my opinion, everyone dreams of owning their own home and in our business, we can help make those dreams come true,” he said.
Mortgage One Banc is joining LNB on the verge of Lorain National’s 100th Anniversary, giving customers of both organization a greater array of products and services. Lorain National customers can take advantage of highly competitive mortgage products and alternative investment vehicles. Mortgage One customers may now avail themselves to a broad spectrum of banking products and services which were not previously available to them from Mortgage One.
Kidd added, “Lorain National Bank is competitive and responsive to customer needs, and we are committed to providing superior products with superior service. With an aggressive sales culture, Mortgage One Banc has a proven record of performance for more than eight years, offering superior mortgage and retail investment products, employing a customer-focused philosophy.”
“Most notably, Mortgage One’s focus on the total customer relationship aligns well with our approach, and we expect that this acquisition will enhance current and prospective customer relationships.”
DIRECTORS AND OFFICERS | ||||||||
Directors of LNB Bancorp, Inc and Lorain National Bank | ||||||||
Stanley G. Pijor | Robert M. Campana | Lee C. Howley | Jeffrey F. Riddell | |||||
Chairman of the Board | President, Campana Development | President | President and | |||||
James F. Kidd | Terry D. Goode | Howley Bread Group Ltd | Chief Executive Officer, Consumeracq, Inc and Consumers | |||||
President and | Vice President, LandAmerica | David M. Koethe | Builders Supply Company | |||||
Chief Executive Officer | Financial Group, Inc and Lorain | Retired, Former | ||||||
County Title Company | Chairman of the Board | John W. Schaeffer, M.D. | ||||||
Daniel P. Batista | The Lorain Printing Company | President | ||||||
Chairman of the Board | James R. Herrick | North Ohio Heart Center, Inc. | ||||||
Wickens, Herzer, Panza, | Vice Chairman of the Board | Benjamin G. Norton | ||||||
Cook & Batista L.P.A. | President | Consultant | Eugene M. Sofranko | |||||
Liberty Auto Group, Inc | LTI Power Systems, | Chairman of the Board | ||||||
Lorain Glass Company, Inc. | ||||||||
Directors Emeriti of Lorain National Bank | ||||||||
James L. Bardoner | T.L. Smith, M.D. | Wellsley O. Gray | Leo Weingarten | |||||
Retired, Former President | Retired Physician | Retired | Retired | |||||
Dorn Industries, Inc. | ||||||||
Officers of LNB Bancorp, Inc | . | |||||||
Stanley G. Pijor | James F. Kidd | Terry M. White | Kevin W. Nelson | |||||
Chairman of the Board | President and | Executive Vice President, | Executive Vice President and | |||||
Chief Executive Officer | Chief Financial Officer and | Chief Operating Officer | ||||||
Corporate Secretary | ||||||||
Directors of Charleston Insurance Agency, Inc. | ||||||||
James F. Kidd | Stanley G. Pijor | James R. Herrick | Jeffrey F. Riddell | |||||
President and | Chairman of the Board | President | President and | |||||
Chief Executive Officer | LNB Bancorp, Inc and | Liberty Auto Group, Inc | Chief Executive Officer, | |||||
Lorain National Bank | Consumeracq, Inc and | |||||||
Consumers Builders | ||||||||
Supply Company | ||||||||
Directors of North Coast Community Development Corporation | ||||||||
James F. Kidd | Evelyn C. France | Daniel Martinez | Homer A. Virdon | |||||
President and | Director | Chairman of the Board | Director | |||||
Chief Executive Officer | Women’s Development Center | and President South Lorain Community | Lorain Metropolitan Housing Authority | |||||
Jose Candelario, Sr | Sydney L. Lancaster | Development Corporation | ||||||
President | Manager Human Resources | Terry M. White | ||||||
Candelario Accounting | Development and | Kevin W. Nelson | Treasurer | |||||
Affirmative Action Officer | Executive Vice President | |||||||
Lorain County | Lorain National Bank | Mitchell J. Fallis, CPA | ||||||
Community College | Secretary | |||||||
Chairman of the Board | Benjamin G. Norton | |||||||
Consultant LTI Power Systems |