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 June 30, 2001
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 July 31, 2001: 4,295,511 shares
Class of Common Stock: $1.00 par value
2
LNB Bancorp, Inc.
Quarterly Report on Form 10-Q
Quarter Ended June 30, 2001
Part I - Financial Information
Item 1 - Financial Statements
Interim financial information required by Rule 10-01 of
Regulation S-X is included in this Form 10-Q as referenced below:
Page
Number
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 5
Condensed Consolidated Statements of
Cash Flows 9
Notes to the Condensed Consolidated Financial
Statements 11
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of
Operations 16
Item 3 - Quantitative and Qualitative Disclosures
about Market Risk 23
Part II - Other Information
Item 1 - Legal Proceedings 24
Item 2 - Changes in Securities 24
Item 3 - Defaults upon Senior Securities 24
Item 4 - Submission of Matters to a Vote of
Security Holders 24
Item 5 - Other Information 24
Item 6 - Exhibits and Reports on Form 8-K 24
Signatures 25
Exhibit Index 26
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FORM 10-Q LNB BANCORP, INC.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
JUNE 30, DECEMBER 31,
CONDENSED CONSOLIDATED BALANCE SHEETS 2001 2000
------------- -------------
(Unaudited)
ASSETS:
Cash and due from banks $ 25,698,000 $ 22,011,000
Federal funds sold and short-term
investments 3,098,000 3,125,000
Securities:
Available for sale, at fair value 88,307,000 79,518,000
Held to maturity, at cost (fair value
$36,217,000 and $43,982,000, respectively) 36,067,000 44,431,000
Federal Home Loan Bank and Federal Reserve
Bank stock, at cost 3,256,000 3,152,000
-------------- -------------
Total Securities 127,630,000 127,101,000
------------- -------------
Loans:
Portfolio loans 450,661,000 442,132,000
Loans available for sale 9,122,000 9,008,000
------------- -------------
Total Loans 459,783,000 451,140,000
Reserve for loan losses (5,195,000) (5,250,000)
------------- -------------
Net loans 454,588,000 445,890,000
------------- -------------
Bank premises and equipment, net 10,862,000 11,251,000
Intangible assets 3,658,000 3,847,000
Accrued interest receivable 4,085,000 4,694,000
Other assets 5,228,000 4,093,000
Other foreclosed assets -0- 98,000
------------- -------------
TOTAL ASSETS $634,847,000 $622,110,000
============= =============
STATEMENT CONTINUED ON NEXT PAGE
4
STATEMENT CONTINUED FROM PREVIOUS PAGE
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Demand and other noninterest-bearing
deposits $ 83,296,000 $ 83,093,000
Savings and passbook accounts 230,855,000 219,618,000
Certificates of deposit 194,382,000 193,380,000
------------- -------------
Total deposits 508,533,000 496,091,000
------------- -------------
Securities sold under repurchase agreements
and other short-term borrowings 32,187,000 39,391,000
Federal Home Loan Bank advances, short-term 23,035,000 16,095,000
Federal Home Loan Bank advances, long-term 6,310,000 8,250,000
Accrued interest payable 1,810,000 1,901,000
Accrued taxes, expenses, and
other liabilities 3,585,000 3,857,000
------------- -------------
Total Liabilities 575,460,000 565,585,000
------------- -------------
Shareholders' equity:
Preferred stock, no par value: Shares
authorized 1,000,000, and shares
outstanding, none
Common stock $1.00 par: Shares authorized
15,000,000 Shares issued 4,395,487 and
4,313,047, respectively and Shares
outstanding 4,295,487 and 4,211,047
respectively 4,313,000 4,313,000
Additional capital 24,339,000 24,336,000
Retained earnings 32,618,000 30,584,000
Accumulated other comprehensive income 1,017,000 192,000
Treasury stock at cost, 100,000 shares (2,900,000) (2,900,000)
------------- -------------
Total Shareholders' Equity 59,387,000 56,525,000
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $634,847,000 $622,110,000
============= =============
See notes to unaudited condensed consolidated financial statements.
5
FORM 10-Q LNB BANCORP, INC.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
SIX MONTHS ENDED
CONDENSED CONSOLIDATED STATEMENTS JUNE 30,
OF INCOME (UNAUDITED) ------------------------
2001 2000
INTEREST INCOME ------------------------
Interest and fees on loans:
Taxable $19,407,000 $18,651,000
Tax-exempt 5,000 10,000
Interest and dividends on securities:
Taxable 3,529,000 3,590,000
Tax-exempt 180,000 124,000
Interest on Federal funds sold and
short-term investments 88,000 85,000
----------- -----------
TOTAL INTEREST INCOME 23,209,000 22,460,000
----------- -----------
INTEREST EXPENSE:
Interest on Certificates of Deposit
of $100,000 and over 1,434,000 1,326,000
Interest on other deposits 6,606,000 6,096,000
Interest on securities sold under repurchase
agreements and other short-term borrowings 636,000 832,000
Interest on Federal Home Loan Bank advances 659,000 679,000
----------- -----------
TOTAL INTEREST EXPENSE 9,335,000 8,933,000
----------- -----------
NET INTEREST INCOME 13,874,000 13,527,000
Provision for loan losses 900,000 600,000
NET INTEREST INCOME AFTER PROVISION ----------- -----------
FOR LOAN LOSSES 12,974,000 12,927,000
----------- -----------
OTHER INCOME:
Investment and Trust Services Division income 1,161,000 1,117,000
Service charges on deposit accounts 1,635,000 1,546,000
Other service charges, exchanges and fees 1,458,000 1,356,000
Gains on sales of investments 80,000 -0-
Gains on sales of loans 17,000 3,000
Other operating income 75,000 23,000
----------- -----------
TOTAL OTHER INCOME 4,426,000 4,045,000
STATEMENT CONTINUED ON NEXT PAGE
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STATEMENT CONTINUED FROM PREVIOUS PAGE
OTHER EXPENSES:
Salaries and employee benefits 5,356,000 5,105,000
Net occupancy expense of premises 778,000 758,000
Furniture and equipment expense 1,045,000 1,289,000
Amortization of intangible assets 198,000 208,000
Supplies and postage 543,000 476,000
FDIC deposit insurance premium 47,000 47,000
Ohio franchise tax 324,000 330,000
Other operating expenses 2,857,000 2,527,000
------------ -----------
TOTAL OTHER EXPENSES 11,148,000 10,740,000
------------ -----------
INCOME BEFORE INCOME TAXES 6,252,000 6,232,000
INCOME TAXES 2,091,000 2,132,000
------------ -----------
NET INCOME $ 4,161,000 $ 4,100,000
============ ===========
PER SHARE DATA:
BASIC EARNINGS PER SHARE $ .97 $ .95
====== ======
DILUTED EARNINGS PER SHARE $ .97 $ .95
====== ======
DIVIDENDS DECLARED PER SHARE $ .50 $ .46
====== ======
See notes to unaudited condensed consolidated financial statements.
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FORM 10-Q LNB BANCORP, INC.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
THREE MONTHS ENDED
CONDENSED CONSOLIDATED STATEMENTS JUNE 30,
OF INCOME (UNAUDITED) ------------------------
2001 2000
INTEREST INCOME -----------------------
Interest and fees on loans:
Taxable $ 9,574,000 $ 9,629,000
Tax-exempt 2,000 5,000
Interest and dividends on securities:
Taxable 1,754,000 1,778,000
Tax-exempt 108,000 63,000
Interest on Federal funds sold and
short-term investments 47,000 46,000
----------- -----------
TOTAL INTEREST INCOME 11,485,000 11,521,000
----------- -----------
INTEREST EXPENSE:
Interest on Certificates of Deposit
of $100,000 and over 656,000 714,000
Interest on other deposits 3,205,000 3,136,000
Interest on securities sold under repurchase
agreements and other short-term borrowings 240,000 396,000
Interest on Federal Home Loan Bank advances 331,000 303,000
----------- -----------
TOTAL INTEREST EXPENSE 4,432,000 4,549,000
----------- -----------
NET INTEREST INCOME 7,053,000 6,972,000
Provision for loan losses 450,000 300,000
NET INTEREST INCOME AFTER PROVISION ----------- -----------
FOR LOAN LOSSES 6,603,000 6,672,000
----------- -----------
OTHER INCOME:
Investment and Trust Services Division income 603,000 615,000
Service charges on deposit accounts 836,000 784,000
Other services charges, exchanges and fees 863,000 701,000
Gains on sale of investments 57,000 -0-
Gains on sale of loans 11,000 1,000
Other operating income 13,000 11,000
----------- -----------
TOTAL OTHER INCOME 2,383,000 2,112,000
STATEMENT CONTINUED ON NEXT PAGE
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STATEMENT CONTINUED FROM PREVIOUS PAGE
OTHER EXPENSES:
Salaries and employee benefits 2,756,000 2,613,000
Net occupancy expense of premises 392,000 372,000
Furniture and equipment expense 526,000 716,000
Supplies and postage 268,000 268,000
FDIC deposit insurance premium 23,000 23,000
Ohio franchise tax 162,000 161,000
Amortization of intangible assets 104,000 104,000
Other operating expenses 1,518,000 1,283,000
------------ ------------
TOTAL OTHER EXPENSES 5,749,000 5,540,000
------------ ------------
INCOME BEFORE INCOME TAXES 3,237,000 3,244,000
INCOME TAXES 1,082,000 1,124,000
------------ ------------
NET INCOME $ 2,155,000 $ 2,120,000
============ ============
PER SHARE DATA:
BASIC EARNINGS PER SHARE $ .50 $ .49
====== ======
DILUTED EARNINGS PER SHARE $ .50 $ .49
====== ======
DIVIDENDS DECLARED PER SHARE $ .25 $ .23
====== ======
See notes to unaudited condensed consolidated financial statements.
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FORM 10-Q LNB BANCORP, INC.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
SIX MONTHS ENDED
CONDENSED CONSOLIDATED STATEMENTS JUNE 30,
OF CASH FLOWS (UNAUDITED) -------------------------
2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES: -------------------------
Interest received $23,850,000 $22,365,000
Other income received 3,141,000 4,083,000
Interest paid (9,426,000) (8,843,000)
Cash paid for salaries and
employee benefits (5,909,000) (5,251,000)
Net occupancy expense of premises paid (598,000) (598,000)
Furniture and equipment expenses paid (326,000) (428,000)
Cash paid for supplies and postage (543,000) (476,000)
Cash paid for other operating expenses (2,485,000) (3,010,000)
Federal income taxes paid (1,955,000) (2,101,000)
----------- -----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 5,749,000 5,741,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities
available for sale 33,091,000 7,000,000
Proceeds from maturities of securities
held to maturity 10,795,000 318,000
Purchases of securities held to maturity (607,000) (701,000)
Purchases of securities available
for sale (43,207,000) (8,858,000)
Net (increase) in loans made to customers (9,715,000) (20,465,000)
Purchases of bank premises, equipment
and software (510,000) (1,042,000)
Proceeds from sales of bank premises,
and equipment (16,000) (18,000)
Purchases of other foreclosed assets 247,000 247,000
Proceeds from liquidation of other
foreclosed assets 296,000 96,000
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (10,120,000) (23,917,000)
----------- -----------
STATEMENT CONTINUED ON NEXT PAGE
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STATEMENT CONTINUED FROM PREVIOUS PAGE
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand and
other noninterest-bearing deposits 203,000 6,151,000
Net increase in savings and
passbook deposits 11,237,000 10,805,000
Net increase in certificates of deposit 1,002,000 15,755,000
Net increase (decrease) in securities sold
under repurchase agreements and other
short-term borrowings 796,000 (9,744,000)
Proceeds from Federal Home Loan
Bank advances 5,000,000 -0-
Payment on Federal Home Loan Bank advances (9,000,000) (10,000,000)
Proceeds from exercise of stock options 3,000 19,000
Dividends paid (2,210,000) (2,023,000)
----------- -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 8,031,000 10,963,000
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 3,660,000 (7,213,000)
CASH AND CASH EQUIVALENTS AT BEGINNING 25,136,000 37,343,000
OF YEAR ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $28,796,000 $30,130,000
=========== ===========
RECONCILIATION OF NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
NET INCOME $ 4,161,000 $ 4,100,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 899,000 1,021,000
Amortization of intangible assets 188,000 199,000
Amortization of deferred loan fees
and costs, net 117,000 135,000
Provision for loan losses 900,000 600,000
(Increase) decrease in accrued interest
receivable 609,000 (81,000)
(Increase) in other assets (807,000) (505,000)
Increase (decrease) in accrued interest payable (91,000) 90,000
Increase (decrease) in accrued taxes,
expenses and other liabilities 136,000 (31,000)
Others, net (363,000) 213,000
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 5,749,000 $ 5,741,000
=========== ===========
See notes to unaudited condensed consolidated financial statements.
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FORM 10-Q LNB Bancorp, Inc.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTRODUCTION
The following areas of discussion pertain to the unaudited condensed
consolidated balance sheets of LNB Bancorp, Inc. (The Parent Company) and its
wholly-owned subsidiaries, Lorain National Bank (The Bank) and Charleston
Insurance Agency, Inc. and a 49% interest in Charleston Title Insurance
Agency, LLC., at June 30, 2001, compared to December 31, 2000 and the results
of its operations and cash flows for the three and six months ending June 30,
2001 compared to the same period in 2000. The term "the Corporation" refers
to LNB Bancorp, Inc. and its wholly-owned subsidiaries. It is the intent of
this discussion to provide the reader with a more thorough understanding of
the unaudited condensed consolidated financial statements 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 June 30, 2001, the
unaudited condensed consolidated statements of income and the unaudited
condensed consolidated statements of cash flows for the three and six months
ended June 30, 2001 and 2000 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. The consolidated balance sheet at
December 31, 2000 has been taken from the audited Financial Statements and
condensed. 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, 2000 Annual Report
to Shareholders.
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The results of operations for the period ended June 30, 2001 are not
necessarily indicative of the operating results for the full year.
RESERVE FOR LOAN LOSSES
Because some loans may not be repaid in full, a reserve for 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 loan losses
that are currently anticipated based on Management's evaluation of several
key factors including information about specific borrower situations, their
financial position and collateral values, current economic conditions,
changes in the mix and levels of the various types of loans, past charge-off
experience and other pertinent information. The reserve for loan losses is
based on estimates using currently available information, and ultimately
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 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 loan's
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 loan losses or by a
provision for loan losses, depending upon the adequacy of the reserve for
loan losses.
RECLASSIFICATIONS
Certain 2000 amounts have been reclassified to conform to 2001 presentation.
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2. EARNINGS PER SHARE DATA
Earnings per share is calculated as follows:
For the 6 Months ended June 30, 2001
Income Shares Per-Share
(Numerator) (Denominator) Amount
--------------------------------------
Net Income $4,161,000
Basic EPS
Income available to
common shareholders $4,161,000 4,295,520 $ .97
=====
Effect of Dilutive Securities
Incentive Stock Options -0- 4,120
---------- ---------
Diluted EPS
Income available to common
shareholders + assumed
conversions $4,161,000 4,299,640 $ .97
========== ========= =====
For the 6 Months ended June 30, 2000
Income Shares Per-Share
(Numerator) (Denominator) Amount
--------------------------------------
Net Income $4,100,000
Basic EPS
Income available to
common shareholders $4,100,000 4,294,389 $ .95
=====
Effect of Dilutive Securities
Incentive Stock Options -0- 6,093
---------- ---------
Diluted EPS
Income available to common
shareholders + assumed
conversions $4,100,000 4,300,482 $ .95
========== ========= =====
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For the 3 Months ended June 30, 2001
Income Shares Per-Share
(Numerator) (Denominator) Amount
--------------------------------------
Net Income $2,155,000
Basic EPS
Income available to
common shareholders $2,155,000 4,305,568 $ .50
=====
Effect of Dilutive Securities
Incentive Stock Options -0- 3,487
---------- ---------
Diluted EPS
Income available to common
shareholders + assumed
conversions $2,155,000 4,309,055 $ .50
========== ========= =====
For the 3 Months ended June 30, 2000
Income Shares Per-Share
(Numerator) (Denominator) Amount
--------------------------------------
Net Income $2,120,000
Basic EPS
Income available to
common shareholders $2,120,000 4,294,498 $ .49
=====
Effect of Dilutive Securities
Incentive Stock Options -0- 4,326
---------- ---------
Diluted EPS
Income available to common
shareholders + assumed
conversions $2,120,000 4,298,824 $ .49
========== ========= =====
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3. COMPREHENSIVE INCOME
The Corporation's comprehensive income for the six months ended
June 30, 2001 and 2000 are as follows:
For the six months ended June 30,
2001 2000
---------------------------------
Net income $4,161,000 $4,100,000
Other comprehensive income:
Change in unrealized gain on
securities available for sale,
net of tax (credit) of
$425,000 and $(54,000) 825,000 (105,000)
----------- -----------
Comprehensive Income $4,986,000 $3,995,000
The Corporation's comprehensive income for the three months ended June
30, 2001 and 2000 are as follows:
For the three months ended June 30,
2001 2000
-----------------------------------
Net income $2,155,000 $2,120,000
Other comprehensive income:
Change in unrealized gain on
securities available for sale,
net of tax (credit) of
$34,000 and $(8,000) 65,000 (14,000)
----------- ------------
Comprehensive Income $2,220,000 $2,106,000
4. LNBB DIRECT - STOCK PURCHASE AND DIVIDEND REINVESTMENT PLAN
Beginning June 1, 2001, LNB Bancorp, Inc. offered to its shareholders and
customers the opportunity to participate in a direct stock purchase and
dividend reinvestment plan. Prior to June 1, 2001, LNB Bancorp, Inc.
shareholders were able to participate in a dividend reinvestment and cash
stock purchase plan which was replaced by the direct stock purchase plan.
The dividend reinvestment plan and the subsequent direct stock purchase plan
enabled LNB Bancorp, Inc. to offer either newly issued or treasury common
shares from LNB Bancorp, Inc., or shares acquired on the open market by the
plan administrator. All shares acquired by plan participants under both
plans in the first half were purchased by the plan administrator on the
open market. LNB Bancorp, Inc. did not receive any proceeds from the sale
of common shares under the plans.
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PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITION & RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain statements contained herein are not based on historical facts and are
"forward-looking statements" within the meaning of Section 21A of the
Securities Exchange Act of 1934. Forward-looking statements which are based
on various assumptions (some of which are beyond the Corporation's control),
may be identified by reference to a future period or periods, or by the use
of forward-looking terminology, such as "may," "will," "believe," "expect,"
"estimate," anticipate," "continue," or similar terms or variations on those
terms, or the negative of these terms. Actual results could differ
materially from those set forth in forward-looking statements, due to a
variety of factors, including, but not limited to, those related to the
economic environment, particularly in the market areas in which the company
operates, competitive products and pricing, fiscal and monetary policies of
the U.S. Government, changes in government regulations affecting financial
institutions, including regulatory fees and capital requirements, changes in
prevailing interest rates, acquisitions and the integration of acquired
businesses, credit risk management, asset/liability management, the financial
and securities markets and the availability of and costs associated with
sources of liquidity.
The Corporation does not undertake, and specifically disclaims any
obligation, to publicly release the result of any revisions which may be made
to any forward-looking statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.
FINANCIAL CONDITION
Total assets of the Corporation increased $12,737,000 during the first half
of 2001, to $634,847,000. This growth was funded by increases in demand
deposits, market access accounts, certificates of deposit and repurchase
agreements.
Total earning assets increased 2.0% to $590,511,000 at June 30, 2001 from
$581,366,000 at December 31, 2000. The ratio of earning assets to total
assets decreased from 93.5% at December 31, 2000 to 93.0% at June 30, 2001.
The loan to deposit ratio has decreased from 90.9% at 2000 year-end to 90.4%
at June 30, 2001. Federal funds sold and other interest bearing
investments decreased by $27,000 during the first six months of 2001.
Total securities increased $529,000 ending the first half at $127,630,000.
At June 30, 2001 gross unrealized gains and (losses) in the investment
portfolio were approximately $1,694,000 and $(103,000), respectively. The
decrease in the market value of the securities portfolio is due to market
17
interest rate fluctuations and not due to the deterioration of the credit
worthiness of borrowers.
Net loans increased $8,698,000 during the first half to $454,588,000 at
June 30, 2001, for a 2% increase. Commercial loan growth was strong
accounting for most of total loan growth. This loan increase was supported
by a spring/summer home equity loan sale program. This home equity sale
program resulted in new loans totaling over $5 million.
The reserve for loan losses ended the quarter at $5,195,000 supported by a
provision for loan losses of $900,000, recoveries of $68,000 and loan
charge-offs of $1,023,000. The reserve for loan losses as a percentage of
ending loans was 1.13% and 1.16% at December 31, 2000 and June 30, 2001,
respectively. Corporate management believes that the reserve for loan losses
at June 30, 2001 remains at an appropriate level. The ratio of the reserve
for loan losses to nonperforming assets remained relatively constant at
257.2% as of June 30, 2001 compared to 258.9% at December 31, 2000. Also,
Corporate management believes that the current level of the reserve for loan
losses is adequate based upon quantitative analysis of identified risks and
analysis of historical trends, and probable losses inherent in the loan
portfolio at June 30, 2001.
Nonperforming assets at June 30, 2001 totaled $2,020,000, up from $1,948,000
at March 31, 2001. The second quarter increase in nonperforming assets of
$72,000 resulted from loans being brought current in the amount of $152,000,
loans charged-off in the amount of $127,000, liquidations of nonaccrual loans
of $161,000 and increases in nonaccrual loans of $717,000.
The level of nonperforming assets decreased by $369,000 during the first
quarter of 2001. This decrease is the result of a decrease in nonaccrual
loans of $495,000 as well as by an increase in other foreclosed assets owned
in the amount of $126,000. The decrease in nonaccrual loans is due to
decreases in nonaccrual principal balances of $326,000 which have been paid
off or brought current, loans charged-off in the amount of $283,000 and
liquidations of nonaccrual loans of $109,000 and increases in nonaccrual
principal balances of $403,000 which includes one large commercial loan
credit of $147,000 and 26 small consumer loan credits. The decrease in
nonaccrual loans in the first quarter of 2001 was due primarily to one
commercial loan customer and 21 personal loan customers. The increase in
Other Foreclosed Assets resulted from the acquisition of one residential
property in the amount of $175,000. The level of nonperforming assets remains
at relatively low levels and Corporate management believes nonperforming
assets are well collateralized.
18
The table below presents the level of nonperforming assets at the end of
the last four calendar quarters.
Amounts in thousands 06/30/01 03/31/01 12/31/00 09/30/00
-------- -------- -------- --------
Nonperforming Assets:
Nonaccrual $2,001 $1,724 $2,219 $1,702
Restructured 0 0 0 0
Other Foreclosed Assets 19 224 98 47
------ ------ ------ ------
Total Nonperforming Assets $2,020 $1,948 $2,317 $1,749
====== ====== ====== ======
Reserve for loan losses
to total nonperforming
assets 257.2% 258.9% 226.6% 296.4%
====== ====== ====== ======
Accruing loans past due
90 days $ 119 $ 112 $ 306 $ 197
====== ====== ====== ======
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 June 30,
2001, potential problem loans totaled $3,433,000, a decrease of $491,000 from
the December 31, 2000 balance. The decrease in potential problem loans
during 2001 is primarily due to decreases from the categories of consumer
indirect automobile loans and mortgage loans.
The Corporation's credit policies are reviewed and modified on an ongoing
basis in order to remain suitable for the management of credit risk within
the loan portfolio as conditions change. At June 30, 2001 there are no
significant concentrations of credit in the loan portfolio.
The Corporation had outstanding loan and credit commitments to make loans
totaling $123,563,000 and $95,893,000 at June 30, 2001 and December 31, 2000,
respectively. The increase in outstanding loan commitments 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 quarter of 2001. Mortgage and
commercial construction loan demand increased in the second quarter of 2001
as seasonal weather conditions improved and the construction season began.
Consumer loan demand increased in the second quarter as demand for home
improvement and automobile loans increased.
Total deposits increased $12,442,000 during the first half to $508,533,000.
Noninterest-bearing deposits increased to $83,296,000, at June 30, 2001 for
an increase of $203,000, while interest-bearing deposits climbed to
$425,237,000 for an increase of $12,239,000.
19
Federal funds purchased and securities sold under agreements to repurchase
increased $1,796,000 during the first half. 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 liquid position in order to take
advantage of interest rate fluctuations. As of June 30, 2001, short-term
security investments with maturities of one year or less totalled $7,591,000,
which represented 6.0% of total securities. Adding cash and due from banks of
$25,698,000, and Federal Funds sold and other interest bearing instruments of
$3,098,000, total liquid assets represented 5.7% of total assets. The
Corporation's subsidiary bank has established short-term lines of credit at
correspondent banks, the Federal Home Loan Bank and the Federal Reserve Bank
of Cleveland in the amounts of $18,000,000, $30,000,000 and $27,701,000,
respectively, with credit available in the amounts of $6,000,000, $25,000,000
and $27,701,000, respectively.
CAPITAL RESOURCES
LNB Bancorp, Inc. continues to maintain a strong capital position. Total
shareholders' equity increased to $59,387,000, at June 30, 2001. The increase
resulted primarily from $4,161,000 of net income generated from the first
half of operations less a cash dividend declared to shareholders of
$2,126,000. The decrease in interest rates experienced in the first half of
2001 has caused an increase in the overall market value of available for sale
securities which resulted in an increase in accumulated other comprehensive
income of $825,000 for the six months ended June 30, 2001. As of June 30,
2001, 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 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
20
ratios for a well-capitalized financial institution for all periods presented
above. The Corporation's capital and leverage ratios as of June 30, 2001 and
2000 follow together with those ratios required for the Corporation to be
considered adequately capitalized.
June 30,
---------------------
2001 2000
------ ------
Tier I capital ratio 11.97% 11.75%
Required Tier I capital ratio 4.00% 4.00%
Total capital ratio 13.11% 12.80%
Required total capital ratio 8.00% 8.00%
Leverage ratio 8.77% 8.44%
Required leverage ratio 3.00% 3.00%
The Corporation regularly evaluates acquisition opportunities and conducts
due diligence activities in connection with possible acquisition in markets
near or within the Corporation's current geographic market. As a result,
acquisition discussions and, in some cases, take place and future
acquisitions could occur. Corporate management believes that its current
capital resources are sufficient to support any foreseeable acquisition
activity.
RESULTS OF OPERATIONS
Numerous factors restrained earnings growth during the first half of 2001.
One major factor was the Federal Reserve Board's sixth consecutive interest
rate cut, bringing the Fed Funds rate down a total of 2.75% since the start
of this easing cycle. This, combined with the asset-sensitive position of
the corporation's Balance Sheet, resulted in a lower interest rate spread
between the amount paid to depositors and other lenders and the rate earned
on our loans and other investments. Compounding these effects were declining
stock market indices, which impeded non-interest income growth during the
first half of 2001. The softening of the economy and its related impact on
credit resulted in the recording of higher levels of loan loss provision in
the first half of 2001, compared with the same period in 2000.
Nevertheless, despite these persistent factors, LNB Bancorp, Inc., was still
able to generate modest earnings growth versus last year. We accomplished
this by working hard to lower our cost of doing business through overhead
rationalization and streamlining our operations to optimize efficiency, as
well as to lower our cost of funding - efforts that will remain an integral
part of our overall strategy in the months ahead. Economic cycles, by their
nature, include both peaks and valleys and we will continue to manage our
business for the opportunities accompanying the inevitable return to a more
favorable economic environment.
The net interest margin for the six months ended June 30, 2001 decreased
12 basis points to 4.78% compared to 4.90% for the same period one year ago.
21
The net interest margin for the second quarter of 2001 was 4.87% compared
to 5.00% for the second quarter of 2000.
Interest and fees on loans for the first half of 2001 increased $751,000
when compared to the first half of 2000. Increased loan income resulted from
the impact of increases in the average loan portfolio balance for the first
half of 2001 increased by $26,400,000 to $453,512,000 as compared to the
first half of 2000 offset by decreases in interest rates. Interest and
dividends on securities was $3,709,000 for the first half of 2001 for a
decrease of $5,000 over the same period in 2000. Decreased investment income
resulted from the impact of increases in the average investment portfolio
balance for the first half of 2001 by $2,274,000 to $126,951,000 as compared
to the first half of 2001, offset by decreases in interest rates for 2001
compared with 2000. Interest and dividends on securities represented 16.0% of
total interest income at June 30, 2001 compared to 16.6% at June 30, 2000.
Interest on Federal funds sold and short-term investments was $88,000 and
$85,000 at June 30, 2001 and June 30, 2000,respectively.
Total interest expense increased by $402,000 when compared to the first half
of 2000. The interest expense increase was fueled by increases in deposit
account interest of $618,000 and offset by a decrease in interest expense
from repurchase agreements and other short-term borrowings of $197,000.
Also, total interest expense for the first half of 2001 was impacted by
decreases in interest rates paid on savings accounts, market access accounts,
certificate of deposit accounts and repurchase agreements when compared to
the first half of 2000.
Total other income increased by $381,000 when compared to the first half of
2000. This increase resulted from increases in income from Investment and
Trust Services Division income of $44,000, increases in service charges of
$89,000, increases in other service charges, and exchanges and fees of
$102,000, increases in other income of $49,000 and gains on sales of
investments and securities of $97,000.
The Corporation continuously monitors noninterest expenses for greater
profitability. The entire staff is geared to improving productivity at all
levels. Noninterest expense for the six months ended June 30, 2001 was
$11,148,000, 3.8% above the first six months of 2000. Noninterest expense
for the six months ended June 30, 2000 was $10,740,000, 4.2% above the first
six months of 1999. This increase was due primarily to increases in salaries
and benefits, supplies and postage and increases in credit card and merchant
expenses.
The effective tax rate decreased slightly from 34.2% during the first half of
2000 to 33.5% during the first half of 2001. The decrease in the effective
tax rate is due primarily to the increases in tax exempt interest income to
total interest income.
Net income was $4,161,000 and $4,100,000 for the six months ended June 30,
22
2001 and 2000, respectively. Net income per basic and diluted share was $.97
and $.95 for the six months ended June 30, 2001 and 2000, respectively, after
giving effect for a two percent stock dividend paid on July 2, 2001. The
annualized return on average assets for the 2001 first half was 1.34 percent
compared with 2000's 1.39 percent. The annualized return on average
shareholders' equity for the first half was 14.39 percent compared with
15.86 percent last year.
IMPACTS OF ACCOUNTING AND REGULATORY PRONOUNCEMENTS
On July 20, 2001, The Financial Accounting Standards Board issued Statements
No. 141, "Accounting for Business Combinations" and No. 142, "Accounting
For Goodwill and Other Intangible Assets." Statement 141 requires all
business combinations initiated after June 30, 2001 to be accounted for using
the purchase method. Poolings initiated prior to June 30, 2001 are
grandfathered. Statement 142 replaces the requirement to amortize intangible
assets with indefinite lives and goodwill with a requirement for an
impairment test. Statement 142 also requires an evaluation of intangible
assets and their useful lives and a transitional impairment test for goodwill
and certain intangible assets. After transition, the impairment tests will
be performed annually. A Company must adopt Statement 142 at the beginning
of the fiscal year. LNB Bancorp, Inc. will adopt Statement 141 as of July 1,
2001 and Statement 142 as of January 1, 2002. Management is currently
analyzing the effect Statement 142 will have on our financial statements.
23
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, 2000,
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. Corporate management has determined no
significant changes in the Corporation's interest rate risk profile since
December 31, 2000.
With the Federal Reserve Board's recent announcements to decrease the rates
by 275 basis points during the first half of 2001, the Corporation
anticipates a modest decrease in the net interest margin during 2001. The
amount of the decrease will be determined, in part, by any rate reductions
resulting from actions of the Federal Open Market Committee. Also, Corporate
management does not anticipate any significant changes in the Corporation's
market risk of interest rate risk portfolio.
24
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 (13) - Second Quarter Report to shareholders of LNB
Bancorp, Inc., June 30, 2001.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the three months ended
June 30, 2001.
25
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LNB BANCORP, INC.
(registrant)
Date: August 14, 2001 /s/ Gregory D. Friedman
_________________________
Gregory D. Friedman, CPA
Executive Vice President and
Chief Financial Officer
Date: August 14, 2001 /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
(11) Computation of Shares Used for Earnings Per Share
Calculations Footnote Earnings Per Share on pages 14-15
of this Form 10Q is incorporated by reference.
(12) Second Quarter Report to Shareholders of LNB Bancorp,
Inc. June 30, 2001 - EDGAR Version
27
LNB Bancorp, Inc.
Exhibit to Form 10 - Q
(For the six months ended June 30, 2001)
S - K Reference Number (13)
Second Quarter Report to Shareholders of
LNB Bancorp, Inc. (dated June 30, 2001)
EDGAR Version
DESCRIPTION:
Three sided pamphlet:
Outside cover: white with blue stripe across the top with two pictures of
LNB Employees with Ohio Reads Students
Second Quarter Report
June 30, 2001
(Logo) LNB
Bancorp, Inc.
and subsidiaries
Inside contains:
Message to shareholders,
Unaudited EDGAR version Consolidated Balance Sheets for period ending
June 30, 2001 and June 30, 2000, respectively,
Unaudited EDGAR version Consolidated Statements of Income for the Six
Months ended June 30, 2001 and June 30, 2000, respectively,
LNBB Direct: A New Stock Purchase & Dividend Reinvestment Plan
Directors of LNB Bancorp, Inc. and Lorain National Bank
Officers of LNB Bancorp, Inc.
Directors Emeriti of Lorain National Bank
Directors and Officers of Charleston Insurance Agency, Inc.
28
Message to Shareholders
It's a pleasure, once again, to report on the progress of LNB Bancorp,
Inc., and its subsidiary companies after the first half of 2001. Earnings
increased 2% for the first half of the year compared to the same period one
year ago. Earnings for the first six months of 2001 reached $4,161,000, up
from $4,100,000 during the first half of 2000. Second quarter's earnings for
2001 reached $2,155,000 compared with $2,120,000 for the second quarter of
2000.
Numerous factors restrained earnings growth during the first half of 2001.
One major factor was the Federal Reserve Board's sixth consecutive interest
rate cut, bringing the Fed Funds rate down a total of 2.75% since the start
of this easing cycle. This, combined with the asset-sensitive position of
the corporation's Balance Sheet, resulted in a lower interest rate spread
between the amount paid to depositors and other lenders and the rate earned
on our loans and other investments. Compounding these effects were declining
stock market indices, which impeded non-interest income growth during the
first half of 2001. The softening of the economy and its related impact on
credit resulted in the recording of higher levels of loan loss provision in
the first half of 2001, compared with the same period in 2000.
Nevertheless, despite these persistent factors, LNB Bancorp, Inc., was still
able to generate modest earnings growth versus last year. We accomplished
this by working hard to lower our cost of doing business through overhead
rationalization and streamlining our operations to optimize efficiency, as
well as to lower our cost of funding - efforts that will remain an integral
part of our overall strategy in the months ahead. Economic cycles, by their
nature, include both peaks and valleys and we will continue to manage our
business for the opportunities accompanying the inevitable return to a more
favorable economic environment.
Basic and diluted earnings per share for the first half of 2001 reached
$.97, a 2% increase from the $.95 amount reported for the first half of 2000.
Earnings for the first half of 2001 were higher than a year ago because of
slightly higher net interest income and non-interest income, offset in part
by higher operating expenses and loan loss provision. The increase in net
interest income for the first half of 2001 was supported by strong commercial
loan growth.
Cash dividends declared per share for the first half of 2001 increased 9%
from the first half of 2000. The year-to-date cash dividends declared per
share in 2001 increased by $.04 to $.50 per share, up from $.46 per share in
2000.
In addition, we are pleased to announce a 2% stock dividend was paid to
shareholders on July 2, 2001. The stock dividend increased the common stock
29
outstanding of LNB Bancorp, Inc. by 84,221 shares to 4,295,487 shares. Cash
was issued in lieu of fractional shares. Per-share amounts for prior periods
have been adjusted to reflect the 2% stock dividend.
Consolidated assets increased 3% to $634.9 million as of June 30, 2001 up
$20.7 million from June 30, 2000. Total deposits increased 4 percent to
$508.5 million, up $19.0 million from one year ago. Total shareholders'
equity increased by $6.4 million during the 12 months ended June 30, 2001,
for a 12% increase. Lorain National Bank operates 22 retail branches and 28
ATMs in nine local communities.
We appreciate and thank you for your continuing support and look forward to
addressing you after the completion of our third quarter of operations.
/s/ Stanley G. Pijor /s/ Gary C. Smith
--------------------- ------------------
Stanley G. Pijor Gary C. Smith
Chairman of the Board President and
Chief Executive Officer
NET INCOME Millions of Dollars
(A Net Income graph follows in printed version with net income on the y-
axis and years 1997 through 2001 on the x-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.)
DIVIDENDS PER SHARE Dollars*
(A Dividends Per Share graph follows in printed version with dividends per
share on the y-axis and years 1997 through 2001 on the x-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 y-axis and years 1997 through 2001 on the x-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.)
30
Basic Earnings
Net Income Dividends Per Share Per Share
Year Millions of Dollars Dollars* Dollars*
2001 $4,161 $ .50 $0.97
2000 $4,100 $ .46 $0.95
1999 $3,796 $ .42 $0.88
1998 $3,432 $ .38 $0.79
1997 $3,120 $ .30 $0.72
*Adjusted for stock dividends and splits
31
Consolidated Balance Sheets
June 30, 2001 2000
- -------------------------------------------------------------------------
ASSETS:
Cash and Due From Banks. . . . . . . . . . . .$ 25,698,000 $ 27,094,000
Federal Funds Sold and Short-term Investments. 3,098,000 3,036,000
Federal Home Loan Bank and Federal
Reserve Bank Stock, at Cost . . . . . . . . . 3,256,000 3,046,000
Securities Held to Maturity, at Cost . . . . . 36,067,000 44,785,000
Securities Available for Sale, at Fair Value . 88,307,000 77,412,000
Loans. . . . . . . . . . . . . . . . . . . . . 459,783,000 439,422,000
Reserve for Loan Losses . . . . . . . . . . . (5,195,000) (4,868,000)
---------------------------
NET LOANS. . . . . . . . . . . . . . . . . . . 454,588,000 434,554,000
---------------------------
Premises, Equipment and Intangible
Assets, (net) . . . . . . . . . . . . . . . . 14,520,000 15,320,000
Accrued Interest Receivable and
Other Assets. . . . . . . . . . . . . . . . . 9,313,000 8,871,000
---------------------------
TOTAL ASSETS . . . . . . . . . . . . . . . . .$634,847,000 $614,118,000
---------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Noninterest-Bearing Deposits . . . . . . . . .$ 83,296,000 $ 86,805,000
Interest-Bearing Deposits. . . . . . . . . . . 425,237,000 402,737,000
---------------------------
TOTAL DEPOSITS . . . . . . . . . . . . . . . . 508,533,000 489,542,000
---------------------------
Securities Sold under Repurchase Agreements
and Other Short-term Borrowings . . . . . . . 32,187,000 42,378,000
Federal Home Loan Bank Advances. . . . . . . . 29,345,000 24,345,000
Accrued Interest, Taxes, Expenses and
Other Liabilities . . . . . . . . . . . . . . 5,395,000 4,842,000
---------------------------
TOTAL LIABILITIES. . . . . . . . . . . . . . . 575,460,000 561,107,000
---------------------------
Preferred Stock. . . . . . . . . . . . . . . . -0- -0-
Common Stock . . . . . . . . . . . . . . . . . 4,313,000 4,228,000
Additional Capital . . . . . . . . . . . . . . 24,339,000 22,703,000
Retained Earnings. . . . . . . . . . . . . . . 32,618,000 30,155,000
Accumulated Other Comprehensive Income(Loss) . 1,017,000 (1,175,000)
Treasury Stock, at Cost. . . . . . . . . . . . (2,900,000) (2,900,000)
---------------------------
TOTAL SHAREHOLDERS' EQUITY . . . . . . . . . . 59,387,000 53,011,000
---------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . .$634,847,000 $614,118,000
---------------------------
32
TOTAL ASSETS Millions of Dollars
(A Total Assets graph follows in printed version with total assets on the
y-axis and years 1997 through 2001 on the x-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 DEPOSITS Millions of Dollars
(A Total Deposits graph follows in printed version with total deposits on
the y-axis and years 1997 through 2001 on the x-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 Shareholder's Equity graph follows in printed version with total
shareholder's equity on the y-axis and years 1997 through 2001 on the
x-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'
Total Assets Total Deposits Equity
Year Millions of Dollars Millions of Dollars Millions of Dollars
2001 $634.9 $508.5 $59.4
2000 $614.1 $489.5 $53.0
1999 $590.5 $464.2 $49.6
1998 $508.4 $432.6 $46.7
1997 $457.0 $384.5 $43.6
33
Consolidated Statements of Income
Six Months Ended June 30, 2001 2000
- -------------------------------------------------------------------------
INTEREST INCOME:
Interest and Fees on Loans . . . . . . . . . . .$19,412,000 $18,661,000
Interest and Dividends on Securities:. . . . . . 3,709,000 3,670,000
Interest on Federal Funds Sold and
Short-term Investments. . . . . . . . . . . . . 88,000 129,000
-------------------------
TOTAL INTEREST INCOME. . . . . . . . . . . . . . 23,209,000 22,460,000
-------------------------
INTEREST EXPENSE:
Interest on Deposits . . . . . . . . . . . . . . 8,039,000 7,422,000
Interest on Securities Sold under Repurchase
Agreements and Other Short-Term Borrowings . . 637,000 832,000
Interest on Federal Home Loan Bank Advances. . . 659,000 679,000
-------------------------
TOTAL INTEREST EXPENSE . . . . . . . . . . . . . 9,335,000 8,933,000
-------------------------
NET INTEREST INCOME. . . . . . . . . . . . . . . 13,874,000 13,527,000
-------------------------
Provision for Loan Losses. . . . . . . . . . . . 900,000 600,000
-------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES . . . . . . . . . . . . . . . . 12,974,000 12,927,000
-------------------------
OTHER INCOME:
Investments and Trust Services Division Income . 1,161,000 1,117,000
Fees and Service Charges . . . . . . . . . . . . 3,092,000 2,902,000
Gains From Sales of Loans,
Securities, and Fixed Assets. . . . . . . . . . 99,000 -0-
Other Operating Income . . . . . . . . . . . . . 74,000 26,000
-------------------------
TOTAL OTHER INCOME . . . . . . . . . . . . . . . 4,426,000 4,045,000
-------------------------
OTHER EXPENSES:
Salaries and Employee Benefits . . . . . . . . . 5,356,000 5,105,000
Net Occupancy Expense of Premises. . . . . . . . 778,000 758,000
Furniture and Equipment Expenses . . . . . . . . 1,045,000 1,289,000
Supplies and Postage . . . . . . . . . . . . . . 543,000 476,000
Ohio Franchise Tax . . . . . . . . . . . . . . . 324,000 330,000
Other Operating Expenses . . . . . . . . . . . . 3,102,000 2,782,000
-------------------------
TOTAL OTHER EXPENSES . . . . . . . . . . . . . . 11,148,000 10,740,000
-------------------------
34
INCOME BEFORE INCOME TAXES . . . . . . . . . . . 6,252,000 6,232,000
-------------------------
Income Taxes . . . . . . . . . . . . . . . . . . 2,091,000 2,132,000
-------------------------
NET INCOME . . . . . . . . . . . . . . . . . . .$ 4,161,000 $ 4,100,000
-------------------------
PER SHARE DATA:
BASIC EARNINGS PER SHARE $ .97 $ .95
-------------------------
DILUTED EARNINGS PER SAHRE $ .97 $ .95
-------------------------
DIVIDENDS DECLARED PER SHARE $ .50 $ .50
-------------------------
(LOGO) LNB
Bancorp, Inc.
and subsidiaries
Logos NASDAQ Listing, FDIC, Federal Home Loan Bank, Equal Housing Lender
35
Picture of plan cover for LNBB Direct
LNBB Direct: A New Stock Purchase & Dividend Reinvestment Plan
Current and prospective LNB Bancorp, Inc. shareholders now have an easy
and economical way to invest in our common shares ... LNBB Direct.
LNBB Direct enables new shareholders to make an initial purchase of LNB
Bancorp, Inc. common shares with no entrance fee, and existing shareholders
and participants in its former dividend reinvestment plan to increase share
ownership on a regular basis without paying brokerage commissions.
Since the introduction of LNBB Direct during the second quarter, more than
70 new investors have joined our shareholder ranks.
Overall, our former plan and LNBB Direct have been highly successful. More
than 51 percent of our shareholders are now participating in dividend
reinvestment, and during the past 12 months, about $1 million has been
deposited to the plan, purchasing nearly 50,000 common shares.
The number of shares participating in the plan, approximately 900,000,
equates to roughly 20 percent of LNB Bancorp's shares outstanding.
"We are confident that our company will be a flagship organization in our
market for the future by providing extraordinary service to our customers
and community, while helping our shareholders realize long-term value in
their investment. LNBB Direct is yet another step in this direction," said
Gary C. Smith, LNB Bancorp president and chief executive officer.
LNBB Direct also provides shareholders the convenience of making automatic
monthly purchases from their checking or savings account, to reinvest
dividends, and to have the advantage of free safekeeping of their
certificates.
"The new plan improves upon our former dividend reinvestment plan in that,
in addition to reinvesting all or a portion of dividends received into
additional shares, it provides a convenient means for shareholders to
regularly increase their holdings through an automated debit and investment
feature.
"Moreover, the plan allows new investors to make initial purchases of LNB
Bancorp, Inc. common shares efficiently and without the need to engage a
stockbroker," Smith said.
Enrolling in LNBB Direct is easy. To learn more about the LNBB Direct Plan,
investors simply need to request a plan prospectus from LNB Bancorp's
Investor Relations Department at (800) 860-1007, ext. 7317.
36
LNB Bancorp, Inc. common shares are not deposits. They are not FDIC
insured or bank guaranteed and are subject to investment risk, including
possible loss of the amount invested. This is not an offer of securities.
37
Back Cover:
White background with blue along top of page
Five column format
Directors of LNB Bancorp, Inc. and Lorain National Bank
Stanley G. Pijor Benjamin G. Norton
Chairman of the Board Human Resource
LNB Bancorp, Inc. and Consultant
Lorain National Bank LTI Power Systems
James F. Kidd Jeffrey F. Riddell
Vice Chairman of President and Chief
the Board Executive Officer
LNB Bancorp, Inc. and Consumeracq, Inc. and
Lorain National Bank Consumers Builders
Supply Co.
Daniel P. Batista
Attorney/Shareholder Thomas P. Ryan
Wickens, Herzer, Panza, Executive Vice President
Cook & Batista, L.P.A. and Secretary/Treasurer
LNB Bancorp, Inc.
Robert M. Campana
Managing Director John W. Schaeffer, M.D.
P.C. Campana, Inc. President
North Ohio Heart
Terry D. Goode Center, Inc.
Vice President
Lorain County Gary C. Smith
Title Company President and Chief
Executive Officer
Wellsley O. Gray LNB Bancorp, Inc. and
Retired Lorain National Bank
James R. Herrick Eugene M. Sofranko
President President and Chief
Liberty Auto Executive Officer
Group, Inc. Lorain Glass
Company, Inc.
Lee C. Howley
President Leo Weingarten
Howley and Company Retired
David M. Koethe
Retired, former
Chairman of the Board
The Lorain Printing
Company
38
Officers of LNB Bancorp, Inc.
Stanley G. Pijor Debra R. Brown
Chairman of the Board Senior Vice President
Branch Administration
James F. Kidd
Vice Chairman Sandra L. Dubell
of the Board Senior Vice President
and Senior Lending
Gary C. Smith Officer
President and Chief
Executive Officer Michael D. Ireland
Senior Vice President
Thomas P. Ryan Senior Operations Officer
Executive Vice President
and Secretary/Treasurer Emma N. Mason
Senior Vice President
Gregory D. and Senior Trust Officer
Friedman, CPA
Executive Vice President James H. Weber
and Chief Financial Senior Vice President
Officer and Senior Marketing
Officer
Kevin W. Nelson
Executive Vice President Mitchell J. Fallis, CPA
and Chief Operating Vice President and
Officer Chief Accounting
Officer
Directors Emeriti of Lorain National Bank:
James L Bardoner T.L. Smith, M.D. Paul T. Stack
Retired, Former Retired Physician Retired
President
Dorn Industries, Inc.
39
Directors and Officers of Charleston Insurance Agency, Inc.
Directors
Gary C. Smith James R. Herrick
Chairman of the Board President
Charleston Insurance Liberty Auto Group, Inc.
Agency, Inc.
Jeffrey F. Riddell
Thomas P. Ryan President and Chief
President and Chief Executive Officer
Executive Officer Consumeracq, Inc. and
Charleston Insurance Consumers Builders
Agency, Inc. Supply Co.
Stanley G. Pijor
Chairman of the Board
LNB Bancorp, Inc. and
Lorain National Bank
Officers
Gary C. Smith Gregory D.
Chairman of the Board Friedman, CPA
Vice President and
Thomas P. Ryan Treasurer
President and Chief
Executive Officer Kevin W. Nelson
Secretary
(Logo) LNB
Bancorp, Inc.
and subsidiaries
Mail: LNB Bancorp, Inc.*457 Broadway*Lorain, Ohio 44052-1739
E-Mail: emailservices@4LNB.com*Internet:www.4LNB.com
Telephone: (440) 244-6000*Toll Free: (800) 860-1007
Telefax: (440) 244-4815*Telebanker: (440) 245-4562